Thursday, September 22, 2005
Was it a good move to sell goog?
Well, GOOG is up to 316 today. I definitely had to stop and rethink a bit. Did I sell too soon? A quick look at multiples shows that GOOG @ 316 means:
- Forward PE of 56.3 based on 2005 earnings of $5.61/share
- Forward PE of 43.3 based on 2006 earnings of $7.33/share
- Forward PE of 56.1 based on 2005 earnings of $0.57/share
- Forward PE of 43.8 based on 2006 earnings of $0.73/share
- Forward PE of 44.87 based on 2005 earnings of $0.83/share
- Forward PE of 36.16 based on 2005 earnings of $1.03/share
I feel much better about selling GOOG after i review these numbers. These numbers show ebay to be a comparitively better value than YHOO or GOOG. Overall, I feel better about selling my GOOG stock. Even if GOOG doesn't seem grossly overvalued compared to competition, it definitely is not a good value. There is limited upside from this price. Even if GOOG outperforms these numbers, a lot of buyers are pricing that in and i doubt if we'd see a move up.
On the other hand, ebay seems a better value. If indeed ebay surprises stree with good news again, there's room for it to move up.
Comments:
P/E's and Forward P/E's are helpful in assessing valuation. However, without a sense of the growth rate of a stock, these numbers are relatively meaningless. Thus, the PEG ratio, the ratio of the P/E to the Growth rate is essential in valuation questions and may help you make a decision between several stocks.
In this particular case, GOOG has a PEG of 1.85, YHOO a PEG of 1.98, and EBAY a PEG of 1.70. Thus, from this perspective, we can see that all of the stocks are a bit richly priced (with a PEG of 1.0 considering a good value), but EBAY is also the best buy for the money from this perspective as well.
Bob
In this particular case, GOOG has a PEG of 1.85, YHOO a PEG of 1.98, and EBAY a PEG of 1.70. Thus, from this perspective, we can see that all of the stocks are a bit richly priced (with a PEG of 1.0 considering a good value), but EBAY is also the best buy for the money from this perspective as well.
Bob
I agree with you bob. PEG ratio is helpful to further discern the validity of a PE. However, When you get to 5 year growth rates of YHOO, GOOG, EBAY, I am not sure if i would take any analyst's opinion for granted. These companies' futures can turn on a dime and a little fudge in the "G" can effect the PEG very much.
Basically, I am not convinced that Google's Growth is going to be significantly and sustainably better than the other two.
Basically, I am not convinced that Google's Growth is going to be significantly and sustainably better than the other two.
Ravi,
You make an excellent point! We are all limited to what information is available. Certainly historic information is helpful as documented by indices like p/e ratios that are based on past earnings. However, it is impossible to look at growth stocks without considering in some fashion the "g" of the PEG ratio. However, as we get to 5 year estimated numbers, the guesses start bordering on science fiction.
We are stuck doing the best we can!
You make an excellent point! We are all limited to what information is available. Certainly historic information is helpful as documented by indices like p/e ratios that are based on past earnings. However, it is impossible to look at growth stocks without considering in some fashion the "g" of the PEG ratio. However, as we get to 5 year estimated numbers, the guesses start bordering on science fiction.
We are stuck doing the best we can!
You can never estimate a top. Just like at the market trend and keep moving with a trailing stop loss for a stock like google. May be it even quotes above 500$ someday..who knows with this kind of liquidity in the global systems.
Same is happening to stocks in India.
saurabh, bangalore.
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Same is happening to stocks in India.
saurabh, bangalore.
