GOOG - To Buy Or Not To Buy?

I don’t own Google stock. I never have. That has been a mistake.

And so now I ask myself, should I correct that mistake?

I have sat on the sidelines and watched Google put up amazing quarter after amazing quarter.

It is clear that Google is executing well on its core business, search and text advertising.

And it is also clear that they build great products that users love.

And they are now showing with the acquisition of YouTube that they are willing to step up and buy more than developers.

People say that Google is expensive. The lack of stock splits and the $460/share price is part of that. So is the market cap at $140bn. But if you annualize the third quarter earnings, Google is earning net after tax income at the rate of $3bn per year. So the stock is trading at about 50x net income.

That’s a nice multiple, but I remember when tech stocks like Microsoft and Oracle traded at closer to 100x earnings and still went up.

Google’s net income doubled year over year. If you think it can double again, then 50x earnings is cheap.

I don’t think it can double year over year again, but I’ve been wrong about this stock from the day it went public.

I am thinking about buying some tomorrow. Just to own it. Schmuck insurance. I was like the guy in this Wallstrip video who said he doesn’t own Google, but he owns Yahoo! I think it’s time to try the other shoe on to see how it fits.

UPDATE: HipMojo says that Google could pass Microsoft’s valuation (that being $284bn) by 2010. His logic is simple. If Microsoft cannot grow anymore and Google grows its top line at the rates analysts are predicting, and if their operating margins stay at 25%, and if the PE drops to mid 30s, it will happen. A lot of ifs there, but it’s worth reading. Could be a peak into a crystal ball.

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