Want to Get in on Google? Here’s What I Think

Internet search engine Google Inc. (NASDAQ/GOOG) has broken above $500 on numerous occasions since November 2006, touching a high of $513 on January 16, 2007. I still remember when Google first traded its IPO launch back on August 19, 2004 when the shares could have been bought for a cheap $98!

The return here has been simply amazing for a stock that only debuted just over two years ago. At that time, the $100 IPO price was thought to be somewhat overly ambitious. We now know it was not. And one of the biggest Google bulls on the Street, James J. Cramer of TheStreet.Com Inc. (NASDAQ/TSCM) believes the stock has more significant upside ahead of it.

I would side with Cramer, although I see some volatility along the way. The Street range for the stock is between $415 and $650 with a mean price target of $570.28 as of February 12, 2006.

I have talked about Google in the past, saying that in spite of its rapid price appreciation, the stock’s valuation given its superlative growth potential is not out of whack versus its peer group. In fact, even at the current price of $461, the stock does not look overvalued relative to its peer group.

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Take a look at the growth predictions for Google versus those for Yahoo Inc. (NASDAQ/YHOO) and eBay Inc. (NASDAQ/EBAY). Google’s EPS growth estimates for 2007 are estimated at 34.69% versus a 3.85% year-over-year increase for Yahoo and an 21.9% increase for eBay. Now take a look at Google’s estimated earnings growth over the next five years at 32.5% versus 25% and 20% for Yahoo and eBay, respectively. Google is the top Internet stock at this time. Its growth is spectacular, and, given what we have seen so far, the numbers may even be conservative.

Some of you may be tempted to jump in, but you may want to wait and buy on a dip. An alternative would be playing the options market with call options or bullish call spreads in an effort to reap the upside potential while managing the risk. And if you want to short the stock, I advise otherwise — the momentum risk is too high.