Breakout

Is Google Worth $1,000 a Share?

Jeff Macke
Breakout

Shares of Google (GOOG) are soaring over 10% after the company reported stronger than expected third-quarter earnings results yesterday after the market close. The company logged a 23% gain in net revenues from advertising, with a healthy portion the growth coming from mobile platforms. Google cheif executive Larry Page said the quarter seemed to mark a long-awaited tipping point in the shift from desktop revenues to a business dominated by mobile devices.

"It's arrived," Page said of the shift, "but on a scale few expected."

For the quarter, Google reported earnings of $10.74 per share, well ahead of consensus estimates of $10.34. As Matt Nesto notes in the attached video, analysts across Wall Street are frantically raising their expectations and price targets for Google's stock. Nesto points out that more than 2/3 of analysts had positive ratings on Google ahead of their earnings report. You can bet that number isn't going to come down now.

But the truth is stock prices are a combination of company fundamentals and Wall Street emotion. Last quarter Google missed estimates and the stock got squashed. Here's our coverage from last quarter: Google Earnings: Buy or Bail?. Google's stock was trading at $880 at the time.

Which leads to the question: Is Google now worth buying at $1,000 a share?

Google is higher today because it reported strong numbers, but it's not a 10% better company today than it was 24 hours ago. Wall Street is in a manic phase at the moment. For all the terrific things about Google's third-quarter, the best thing about the report was that it came on a day when institutional investors are feeling like they have far too little exposure to stocks. The average hedge fund was up less than 10% through September and there weren't many people expecting this race to new highs on the S&P500 (^GSPC) on the heels of debt ceiling debacle.

Google shares are being chased because it's now "safe" in terms of fundamentals. Chasing the stock higher here isn't about your long-term view of mobile advertising platforms. It's about playing greater fool chicken with your trading account.

You can try anything you want provided you have an exit plan. I'm on record saying Google is one of the best company's in the world and I certainly haven't changed that opinion today. But if you're tempted to buy the stock know this: The voice in your head isn't analytical reason. It's greed. Do yourself a favor and do a Google search on "Greed Investing" before hitting the "Buy" button.

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