The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

25 May 2005

Google/GOOG - stretched valuation...?

In a series of comments, Ron questions buying Google/GOOG at current prices and valuation. Harry Wilker, a regular visitor to the Deipnosophist's table, has this to say re Google's valuation...
The funny thing about GOOG is that by some measures it is actually cheap relative to it's peers, eBay/EBAY and Yahoo/YHOO. Here are some numbers; (using Yahoo Finance figures):

Current Year's PE:
GOOG - 50.54
EBAY - 48.16
YHOO - 63.63

Next Year's PE:
GOOG - 39.7
EBAY - 37.6
YHOO - 49.68

On such measures as these, the three stocks are about equally valued. GOOG, however, is growing much faster than either EBAY or YHOO.

Year over Year growth in sales::
GOOG - 41.4%
EBAY - 27.1%
YHOO - 26.9%

So, applying the widely used ratio of EPS to growth rate (Growth Rate *100/EPS) you get:
GOOG - 1.22
EBAY - 1.78
YHOO - 2.37

Clearly on this basis the nod (for best value) goes to GOOG by a mile. And this ignores the fact that GOOG is considered much more likely to exceed their estimates by a wide margin than either EBAY or YHOO.

I will have more to say about Google/GOOG's valuation, and other matters, in my coming mega-post about Google, Googleplex.

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