GOOG IS A BIGGEST BUBBLE TODAY, SIMILAR TO INTERNET BUBBLE 2000
And if you own (GOOG) stock then you are part of this bubble that later will be studied in business schools where smart looking Phd's will tell their students about it. The stupid thing of this stupidity is that not a single economics Phd. says it now, they all talk after the crash but never before or during. Because they are all stupid.
Yes, I know that you own GOOG and you make money, a lot of money. The problem is that in year 2000 the same types held E-Toys stock and if you would mention to sell it at $10,000,000,000 market cap, they would throw you out of the window. Today they are (investors) bankrupt, unemployed, broke and even dead.
But you are smarter, you will sell GOOG at $1000 and then be what be, right?
Wrong. You are going to lose not only your profits in GOOG but also your principal, at least a big part of it. You I mean any GOOG investor who are excited today and will cry later. Let's slice this bubble piece by piece:
Yesterday GOOG stock volume was $9B for a company with yearly sales of $26B
or in other words 30% of yearly sales traded in one day. It's average daily volume is $1.8B (based on current price of $600, not average 3 month price) and to see how scare is this number think about it, there are 252 trading days in 2010 and if we multiply $1.8B GOOG daily trading volume by 252 trading days, it equals $453,600,000,000 ($453B) of stock trading for $26B in sales company and this equals 17,4 times more trading than sales. But this is only yearly sales comparison, now let's see how it will look if we instead of crazy ratio of 17.4 Trading Volume/Sales, compare it to Trading Volume/Profits.
Wow, I don't want even to know it because it will be something out of proportions.
So we take $453B is yearly sales and divide it by GOOG yearly EBITDA which is about $10B, $453B/10 equals 45.3 times more in stock trading volume than earnings. All this ratios point to a bubble that is already exploding if you know how to look at it. Now another model, GOOG sells $26B a year, let's divide it by 365 days in a year, it equals $71.2M in daily GOOG revenue (I count full year even if GOOG products are not selling all year long, but because it's internet business then it's OK) but we know that it's daily average stock trading volume is $1.8B so we divide it by real product revenue, it gives us ratio of 25 times more stock trading volume than real revenue dollar volume on any given day.
From any perspective I look, GOOG is at the peak of an iceberg going to slide hard very, very soon. More modeling, now the balance sheet (even if above comparisons are a better indication and statement of big bubble explosion) data, Market Cap is $191B, Price/Sales ratio 6.5 or GOOG sells 6.5 times less than it's market cap. Why? There is no reason to pay so dear for a blue chip company that is a member of S&P 100, S&P 500, Nasdaq 100 to name a few biggest market indexes in the world. All it's balance sheet ratios show that GOOG is overvalued, it's valuations are like of an internet start up stock which GOOG is not.
It's total assets are only $40B so again GOOG is priced at 4.7 times assets and don't forget about it's liabilities of about $4.5B a year, so not all what's EBITDA is income. Also GOOG prints stock certificates like there is no tomorrow, shares outstanding increased from 160,000,000 in year 2002 to 319,000,000 today.
Every year GOOG adds on average from year 2002, 20,000,000 shares.
Resume: Google Inc. is a great company but it's stock is overvalued by all means of common sense and wisdom. I will not say how much is a fair price for GOOG stock but I am saying that $600 is a total top and the next prices will be much lower. It will go to $380, $240, $150 same as now it's outperforming, it will be underperforming as well. It will be cheap, undervalued but then nobody will be crazy about it, because GOOG investors are going to lose all their money. The only winners will be Google insiders and 21,805 employees, only not you - GOOG investor.
The full article with charts and disclosure, look in my blog in profile link.
