Personal Bytes

… is near the end!

But before developing my theory I should make it crystal clear that I really like Google. Moreover, I love Google and I’d love to work there. I believe it’s a wonderful company and I hope it will continue to keep its huge growth and its outstanding earnings. I also hope that it will continue delivering awe products that make our eyes roll.

First, the good stuff

Google has been showing an awe-inspiring growth that makes everyone in Wall Street jealous. Helping the growing trend have been its earning which projected the company into what it stands today.

The Mountainview, CA based company has an excellent financial health. Considering its assets and liabilities there’s no doubts remaining.

So, afterall, what are you complaining about? What’s bad?

There are a lot of things that announce that the honeymoon will be over sometime soon. First off, Google plays on NASDAQ, a stock index for technology. Do you know what characterizes technology? Uncertainty and volatility. Shares go up and down without appearent reason and there’s no straight reasoning between the company’s performance and its share value (as we’ve seen there are companies with an excelent background which aren’t that much appreciated on Wall Street).

So Google being one of those technology companies. It has been showing some remarkable earnings and net income over it few years of existence. Can it keep it forever? Does its current stock value reflect its current assets and growth forecasts? There are people who still believe that Google’s honeymoon will not end. History has shown us otherwise. Before the dot com bubble a lot of people thought sky was the limit — actually, there was no limit for them! As we’ve seen on 8th March 2000, they were plain wrong. Lucky for those who didn’t pay attention and diversified their portfolio.

Besides all this, Google is a new company. Its records are outstanding and all but they’re very recent. It doesn’t exist for enough time as for earnings stability and earnings growth to be considered plausible.

Finally, it’s P/E ratio is too high (!). Truth be told, it’s ridiculously high — 68! Normally it’s between 10 and 30. And 30 represents already an overly misjudged price over its earnings (or the company is so so promising and hot that you’d consider selling your own mom).

Why do I bother?

Well, if Benjamin Graham were alive he would die again knowing that some people are being mislead by buying suggestions. According to one of his advices for the defensive investor, anything beyond 15 for a P/E ratio is high and you should sustain your move with a really strong motif. Imagine what he’d think if you said you’d buy some shares that value sixty eight times the company’s earnings…

To conclude…

I’m not a security analyst nor do I own a degree in Financial Analysis or Economics. Discard my opinion if you’d like.

I’m following you, what would you do?

Well, I’d clearly not buy right now. For those who have already bought I’d wait a little bit longer before selling. The honeymoon and growing trend is absolutely undependable so it’s hard to tell when will it fall. Buying would be too damn risky for an investor (but a great move for any speculator). If you own them already, stick with them for a little longer. Some analysts are increasing its price targets due to the 3rd quarter results. Maybe you could earn a little more — but be advised that the current value is already highly priced.

You’re a moron. Google’s shares will keep rising undefinitely…

OK, do as you wish. You own your money.