$Google a Bubble Waiting to Pop?

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Source Title:
Google shares are a bubble waiting to pop
Story Text:

The Guardian makes an obvious but good point with an article entitled Google shares are a bubble waiting to pop The first paragraph says it all...

Who in their right mind would buy shares in a company at a price equivalent to 25 times its annual sales? For the past century of stock market investment, 25 times post-tax profits has been regarded as expensive. Here we're talking 25 times sales.

Comments

You'd hafta have a nice bit

You'd hafta have a nice bit of pocket change to cover it on margin, if you had the nerve to short sell it. Makes me wonder if thats the reason they didn't announce a split.

A VERY good post and point

In fact, we just blogged about this today over at the kozoru blog.

It's honestly like we haven't learned from our mistakes. Google being valued at this much is simply due to emotional momentum. I think it's great that people want to see them succeed, but they should earn it.

Thoughts?

Thoughts:

...anyone buying Google at that kind of price has a serious short-term memory disorder, or some very compelling inside information.

The 90s .com bubble didn't pop that long ago, did it?

And if you'd bought MS shares after 6 months of trading

How much would you have made by now?

(Personally I wouldn't take the risk based on current valuation but....)

They may be overpriced, but

They may be overpriced, but some of the comparisons may not matter as much.

>25 times post-tax profits has been regarded as expensive. Here we're talking 25 times sales

Google has fat margins, is growing rapidly, and is a leader in a new social network that makes marketing easier than it has ever been, turning interuption marketing into request marketing. as Fantomaster pointed out, there are other ways they could be making lots more money from their data.

According to yahoo finance

According to yahoo finance the trailing PE is 111 and forward PE is 43. If profits grow by the same amount in 2006 the forward PE would be 16 next year. Pretty damn cheap for a company whose profit is growing at 150% a year.

I always said the IPO was a rip off but they havn't tripped up yet.

PE ratios

Sly

You are cleverer than you look:)

Interesting.

Doug

probably dumb questions but...

What is "short selling" and how do you do it? And what is "forward PE" and "trailing PE" respectively?

Thanks :-)

PE = market capitalization

PE = market capitalization (price) / yearly earnings.

trailing is last year. forward is this year.

short selling is selling shares at the current stock market price and then rebuying them after they drop in value.

thanks

Thanks a lot, I've been speculating about what short selling was for a while. It seems like a reasonable thing to do, if you believe that the share price will go up after the decline. It will have to rise more than what is needed to cover two times trading costs, though.

Selling Short

The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

Short selling is a fairly simple concept; you borrow a stock, sell the stock, and then later buy the stock back to return it to the lender.

Source:http://www.investopedia.com/terms/s/shortselling.asp

With short selling you

With short selling you should also know you are buying on credit so you are charged intrest for the whole period, so it's not something you want to do. Also if the stock goes up you lose money.

Gambling long..

Article in theSunday Times today

Quote:
(the bookmaker)has lost £20,000 to a canny housewife who backed a view widely disparaged by many market professionals: that shares in Google would keep on rising.

so, on the one hand

Quote:
Last week analysts at Smith Barney, part of Citigroup, placed a $360 target on Google’s shares. That would give the company a market value of $100 billion

and on the other hand

Quote:
The company admits it faces “formidable competition in every aspect of our business”, particularly from Microsoft and Yahoo. New technology could block its ads, wiping out its revenues. “Our inexperience in the operation of our business outside the US increases the risk that our international expansion efforts will not be successful,” the company said.

You pays your money, and you backs your choice. Me, I'm not a gambling man.

Well the way they are going

Well the way they are going they could always buy microsoft with a share issue to secure their market position

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