What do you do when a stock that you own is falling on no news? That is the case for Google Inc. (NASDAQ: GOOG) shares which closed down today $31.90 bottoming out at $632.07. This is down from it's recent high of $747.24, losing $115.17 or about 20%.
When it was going up there was plenty of good news and hoopla to embellish stories of it reaching $2000, but on the way down there has actually been good news too. I could rationalize all kinds of intriguing stories as to why this has occurred but the most obvious is that it got too expensive and traders started thinking it was time to take some profits.
There are also plenty of investment fund managers wanting to record earnings this year that sold off some of their holdings to make their advertised returns look prettier -- window dressing they call it.
From my perspective Google is a $550 to $600 dollar stock giving it full credit for forward earnings of say $20 per share. Last month I questioned why investors would pay next years price this year . I guess Google's recent vertical leap could only sustain itself so long before other investors started asking the same question.
To find potential opportunities and verify my track record, read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
11-13-2007 @ 1:23AM
finance ninja said...
Come on now! Google has a PEG score of 1.30 currently. Whenever it gets near 1.10 the stock drives back up. Even 1.30 is low for such a high growth stock doing more and more innovation to go to higher prices. I never thought it wouldn't hit $600 or $700, but it will fall yes with technology in this "exceptional fall market crash", but probably not too far away it will kick back into gear. Like you mentioned there has been no news except credit worries, interest rates/inflation, dumb bank CEO's that don't know how to manage loans. Investors will be chasing Google once again once I think it falls in the $550's where its PEG is near 1.00 again. Now I will Apple Co. was the same. That stock is a moron. Its like a shiny new BMW that doesn't know what class it is in! Oh well.
11-13-2007 @ 2:21AM
Zack Miller said...
Hi Sheldon,
Good article. Question: aren't stocks priced on some multiple of future cash flows and earnings? That would mean that I want to own a stock today for its future earnings. I can't buy it a year from now because then next year's earnings should (supposedly) be priced in.
11-13-2007 @ 12:46PM
sliber said...
Zack,
Of course you are buying now on a best guess of future earnings and the next 12 months are estimated to bring in $20 so why were people paying a price for the stock as if it was going to bring in more? Next year investors should be willing to pay more based on higher earnings. Wall Street commonly speaks of stocks "getting ahead of themselves"...at $700 to $750 this one got a year ahead.
This stock has more momentum players, day traders, and novices investing than 90% of the market and that is a stock accelerator in both directions.
11-13-2007 @ 9:46AM
Jeff said...
maybe it's because investors finally realize that google has little to no physical product. Who's going to be funding google's bottom line in the next downturn. advertising is one of the first to go.