October 24, 2006
Google Shmoogle
Since JK's "gratuitous swipe" last Thursday, GOOG's share price has soared another 54 points, an increase of more than 12 percent in just two trading days. Which means it is finally almost 10 points above its all-time high of $471.66 on 11 January, 2006. I'm sure this comes as a relief to the many casual traders who bought in January since the share price has been largely under water since then prior to last week.
Google's year-to-date appreciation is indeed about 16%, but stodgy old Exxon-Mobil checks in with nearly 25% gain since January 1. And, has dividends to boot!
Add to this that XOM's P/E ratio is 11 while GOOG's is 61 and the same dollar invested in Exxon delivers more than five times the earnings as does that slick tech fad.
When I said in January that paying $400 a share for Google would earn you the moniker "moron" it was because Google is the exact same formula that created (and burst) the 1999-2000 tech bubble: Hype and buzz and very little hard assets. If you want to ride that firecracker again then don't let li'l ol' me stop you!
Google Oil and Energy Posted by JohnGalt at October 24, 2006 12:54 AM
Well played, friend, well played.
I'll agree with your premise of XOM over GOOG, but dispute that the current GOOG run is all hype or comparable to pets.com.
Does your cool charting tool do PEG ratios? I contend that Google's high P/E is supported by growth of earnings -- exactly what the bubble stocks did not have.
I should point out to anybody choosing sides that jg has a farm to bet and I lost everything on a start-up I was working for. I take my gratuitous swipes from a house of glass.
Posted by: jk at October 24, 2006 10:11 AMI have to admit to not knowing what a PEG ratio is but I've since learned that it isn't generally a charted value, presumably because it doesn't change very fast. I also learned that a PEG ratio (P/E ratio divided by expected long term growth rate) of more than 1.0 is poor, less than 1.0 is good, and less than 0.5 is excellent.
Finance.yahoo.com lists the 5-year expected PEG ratios for GOOG and XOM as 1.58 and 1.53, respectively. These are virtually equal, which tells me that Exxon's earnings growth is not great (to be expected for the leading company in a mature market) and that Google's earnings growth is almost good enough to counteract its huge P/E ratio.
One may conclude that investing in Google is as wise as investing in Exxon Mobil, except for that insane share price. And why does Google keep it so high instead of splitting it down to the 25-50 range? I'm just guessing but I suspect the founders restrictions on the selling of shares are tied to number of shares instead of percentage of outstanding shares or dollar value. If shares are worth $500 each then they can cash out bigger faster. More investors buying Google only helps them more.
Posted by: johngalt at October 26, 2006 4:12 PMPerhaps they're big Berkshire-Hathaway fans...
I brought up the PEG ratio to show that Google's higher multiple is supported by its highert growth rate.
Posted by: jk at October 26, 2006 4:23 PM | What do you think? [3]