Is it 1999 all over again?
Tech stocks are racing higher in price again… Google being the leader. For the first time, Google’s stock has passed $600.00 per share. In fact, as I write today’s commentary, Google’s stock is trading at $615.00. Many analysts already see $700.00 a share as the next step for Google.
I’ve never thought the price of a stock on its own was any form of indicator. It’s the price/earnings multiple and growth potential of the company that in the long run justify a stock price. Look at Berkshire Hathaway’s stock. Somewhere along the way Warren Buffett forgot to split the stock and today it sells at $123,000 a share.
Back to Google… The company made about $10.00 per share last year. Hence, investors are quite willing to pay 61.5 times last year’s earnings to buy Google’s stock. Going forward, Google is expected to garner $13.00 a share this year. Hence, investors are happy to pay 47 times this year’s earnings for Google.
Will Google’s stock go higher? Yes, I believe it will. I say this because the company has a history of surprising analysts on the upside when it comes to reporting its profits. And what other billion-dollar company is growing at 30% to 50% a year?
Aside from earnings and sales growth, Google has one important factor working for it. The company has become the world’s most used and most widely recognized search engine.
Who doesn’t use Google to search a topic on the Internet? And with more people each passing day going to the Net to research topics, what advertiser wouldn’t pay to be listed near the top of a topic’s search result list?
As the market keeps rising the wall of worry, I really wouldn’t be surprised to see Google’s stock trading closer to $1,000 a share in the not-too-distant future.