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Alphabet Inc. Message Board

  • investora2z investora2z May 2, 2013 8:06 AM Flag

    One should remain cautious

    The results have really added another leg the uptrend and the rally seems to be heading towards new highs. From a pure fundamental perspective, Google is trading at 24.55 times earnings and 5 times sales. This seems stretched but once the future growth is factored, things start to look different. The forward P/E is less than 16, and strength of the brand makes it difficult to value Google purely from the earnings point of view. Add to that the $50 billion cash on books and the expected growth due to innovations, the premiums start to appear justified. The next big trigger for Google (apart from the earnings) in the near term is the success or failure of the Glass. If that succeeds, then that will add one more leg to the uptrend. However, if it fails, things may start to look a little scary at the $850 level top. Success of innovations is never guaranteed and new products sometime are victims of the expectations. The recent strength cannot be ignored but one should be a little careful at these high levels. Google also faces the risk of adverse outcome in patent infringement lawsuits. Such lawsuits are common, and smaller companies like Marathon Patents Group (MARA) have taken on biggies like Sony, Dell, Siemens etc. for infringement of patent rights. Marathon is now buying patents which have not been exploited to their potential. In addition, Google faces lawsuits in Europe / UK for dominance/ privacy policy issues. This is also an area of concern. It seems that Google had become a little less concerned about these issues, and made some mistakes. It has been dragged to court, and whether deliberate of unintended, the lawsuits do carry a risk of huge penalties. Launch of Glass and other products may also bring in requests for licensing of their technologies by smaller companies. Investors, meanwhile should start to get a little cautious, especially before the launch.

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