Google is still full of surprises
While analysts fret it's a one-trick pony, it's still churning out ideas that could pay off long-term. And investors are going along.
Last week, the company’s stock reached what financial pundits call a "psychological" milestone of $900, a fancy way of saying "get a load of this." Google's market capitalization now tops $300 billion. By comparison, General Electric (GE), which was founded in 1892, has a market value of about $242 billion.
However, Google is far from invincible. Wall Street has a litany of worries about the company ranging from soft advertising prices to heightened competition from Facebook (FB) and other rivals. Analysts continue to fret that Google's side projects, such as Google Glass and a subscription music service, will sap the company’s attention from its core search business.
Remarkably, none of these concerns are scaring investors, who have pushed up Google's share price by almost 30% this year. Facebook has barely budged, and Apple has plunged more than 18%.
Technically, Google is a one-trick pony, earning the vast majority of its profits from search advertising, but it's a great "trick." Analysts expect Google to generate $59.4 billion revenue this year. With numbers like that, Google can afford to send a man to the moon. These estimates may prove to be conservative as Google begins to profit from its Android operating system, which runs 75% of the world's smartphones.
What's better for investors is that even at its lofty price, Google is a cheap stock. Reuters pegs its price-to-earnings ratio at 26.91, which is under its five-year high. Compared with Facebook, which sports a multiple topping 2,000, the shares are a bargain.
The stock is trading near its 52-week price target of $904.24, so it may be wise to wait for a pullback before buying the shares. In 2006, an analyst made headlines when he speculated that was possible for the search giant to reach a $2,000 stock price. That notion certainly seems less far-fetched today.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @Jdberr.
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