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Strategies & Market Trends : The New Economy and its Winners

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To: Lizzie Tudor who wrote (26611)	12/14/2005 12:43:05 AM
From: Elroy	Read Replies (1) of 57684

Oh puhhhlease! Ask and ye shall receive!!! Cramer called Google the "fastest-growing company in the world" and the "greatest equity phenomena of the 21st century." He raised his price target based on his estimate Google will earn $10 a share in 2006. VCLK is currently forecast to grow revenues 94% over the next four quarters. That's faster than the Google revenue growth forecast. So GOOG is not "the fastest growing company in the world". The average stock trades at about 18.5 times earnings and is growing at about 10%, Cramer said. Google is growing about three or four times as fast as the average stock, so Google should trade at a multiple of at least three times 18.5, Cramer added. That would put Google at $550. "No wonder it keeps going higher." The S&P 500 has a PE of 15.5x, so his 18.5x number is wrong. GOOG should trade at about 3 x 18.5x he says. It does. 3 x 18.5 = 55.5, and GOOG's PE is ~54x. Conclusion - GOOG is appropriately valued, not cheap! Cramer said Google's success stems from its value proposition. Google allows "everybody to have every bit of information at their fingertips around the world" for free, he said, and advertisers are able to target their ads precisely. It's the "greatest value proposition," he said, adding that Google will wipe out every section of the newspaper. Wanna bet? How many years until newspapers go the route of 8 track tapes? Answer - more than your lifetime! Answer me this, do you think 2007 EPS growth over 2006 will be more or less than 2006 EPS growth over 2005? THAT is the key question for whether GOOG (at 54x forward EPS) is over or under valued.

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