Why Google might be a buy
Google is one of those stocks that no traditional investor will ever understand. In 2001, traders were clobbered when stocks like Google — the 100 PE ratio– no direction but up stocks went straight down. Google follows all definitions of a bubble stock, and as any experienced trader will tell you, it’s a dot-com bust all over again.
But what has really driven Google might not just be the fundamentals. After Google’s recent drop from $700 per share to $560, this 20% retracement gives me reason to believe its time to buy again. Google was due for a hefty correction, now that the fundamentals are now on its side, I think we have a hot performer.
After the recent fall, Google has set itself up fundamentally and technically for another movement. With $13Billion in cash, Google is set for some more large acquisitions to expand its dominance in internet advertising. Right now, the share price trades at just 47 times last years earnings, and just 27 times expected 2008 earnings; the cheapest the stock has been in quite some time.
The best number might be in the PEG ratio, or price of the stock divided by earnings per share, divided by growth. At a 1.05 PEG ratio, this stock is an extremely good buy. A PEG of anything between 1.5-2 is considered good, 1 is awesome.
But most importantly might be this tricky little trendline following its quick rise to the top. Since inception, this line has held perfectly, even after being touched 7 times in just the last 3 years. Between the fundamentals and perfect technicals, Google might be ready for another run to $700. Movement through $620 would give me the comfort of knowing the stock is headed to the upside. Until then, I think it’s a buy up to the $620 level.
Great analysis and chart, thanks!