Investors Debate Value of Google Stock
Is Google Inc.'s incandescent stock a golden opportunity or fool's gold? Investors have been arguing that question since Google's initial public offering in August 2004.
But the stakes have grown progressively higher over the past 11 months as the online search engine maker's shares zoomed past $200, then $300 and, most recently, $400, as Google firmly established itself as the gold standard in Internet advertising.
"With every $100 that goes by, the risk/reward ratio gets less appealing," said Hoefer & Arnett analyst Martin Pyykkonen.
Just seven years after the company's inception in a Silicon Valley garage, Google's market value has soared above $100 billion — eclipsing a long list of business icons that includes Coca Cola Co., Pepsico Inc., Time Warner Inc., Hewlett-Packard Co. and Home Depot Inc.
While hordes of investors have been hungrily buying Google's stock, company co-founders Larry Page and Sergey Brin have been busily cashing in on the craze. Through November, Page and Brin, both 32, had each made $1.3 billion by selling a slice of their controlling interest in the Mountain View, Calif.-based company, according to data compiled by Thomson Financial.
But Google's rapid run-up is making it more difficult to figure out how outside investors can make money on the stock, said Stanford Financial Group analyst Clayton Moran.
"I think the current price is justified, but I just can't go out and tell my clients to buy the stock now," said Moran, explaining why he downgraded Google's shares to a "hold" earlier this week.
Moran values Google's shares at $425 — higher than more pessimistic analysts like Standard & Poor analyst Scott Kessler, who believes $364 is a more realistic price. Google's shares closed at $417.70 Friday, up $3.61.
"I think Google is a great company and it has been a great stock, but I don't have a lot of confidence the shares will continue to ramp up," Kessler said.
Google's shares, in fact, would probably tumble badly if the company were to miss the lofty earnings expectations being set by analysts with no guidance from management.
Other thorny issues could easily prick the stock.
The company already is locked in a series of legal battles over the search engine's alleged abuse of trademark and copyright laws while mighty Microsoft Corp. — armed with $40 billion in cash — continues to invest heavily in a strategy aimed at toppling Google. Some analysts also are worried about Google's ability to manage a rapid expansion that might include a substantial investment in Time Warner's AOL.
Whatever happens next, Kessler thinks it would be a mistake to presume things will continue to go as smoothly for Google as they have over the past 16 months.
"It's really dangerous to think a company will have long-term staying power in technology, where things can change so fast and so dramatically," he said. "Investors will respond to any chink in Google's armor by selling."
Source: AP
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