Wednesday, December 19, 2007

Yahoo/Google Revisited, Quick Valuation Update

We are in the middle of the great Information Revolution and some companies have to make sense out of all the data in the world and make it useful to the end user.

Google (GOOG) is an obvious play and so is Yahoo (YHOO).

GOOG is the one which is most likely a better investment.

GOOG has a forward PE of 32, 5 year growth rate of 34.4% for a Price to Earnings Growth Rate Ratio (PEG) of a very low 0.93 (under 1 is very cheap, over 2 is overvalued).

Ignore the actual price of the stock (GOOG is close to $700), and pay more attention to the other measures of valuation.

YHOO (Yahoo) has a forward PE of 42.63 and a 5 year estimate growth rate of 25.4% for a PEG of 1.70.

The PEG of Yahoo (YHOO) is still under 2, but Google (GOOG) is still a great value and worth investing in.


Ed H said...

I bet you regret this observation on the future price of GOOG as it now sits at 500/share less than 2 months later. Perhaps viewing fundamentals is only half the story. If you had reviewed the technical analysis of GOOG you would not have been so optimistic. By the way the forward P/E is now 20. In addition the gross ecomonic indicators (fundamentals) are not in the market's favor.

techfarmer said...

Interesting point.

In this market, almost all stocks, including tech stocks have been hammered. GOOG is not completely immune to this.

I follow both technical and fundamental analysis but if you look at the valuation and long term trends and have a longer time horizon, GOOG would be one of those core tech holdings.