In this article, we will look at two analysis of Google. One is based on the earning yield and comparing it to the long bond. The second one is based on discount cash flow analysis done by Aswath Damodaran.
At this years earnings of $10.00 and next years earnings of $13.50, the earning yield for Google in the next two years at today's price is 2.4% and 3.21% respectively. The ten year bond is currently trading at 4.6%.
Let us do a quick comparison to Microsoft and Yahoo! Googles top two competitors. Yahoo! has an earning yield of 1.9% and 2.56% respectively. Microsoft on the other hand has an earning yield of 5.15% and 5.99% respectively. On a comparative basis, one can see Microsoft, Google and then Yahoo! as the stocks to buy from the perspective of stability.
Aswath Damodar has done a discount cash flow analysis of Google. His analysis in his website based on discount cash flows puts a value of $110.00 for Google based on discount cash flow analysis.
The summary of these analysis shows that Google is a great momentum play. Google is likely do well in the short term but longer term the stock is likely remain stagnant or go down in value. One can definitely expect wild swings in Google stock in the upcoming months.