Does Google Show Any Signs of Slowing?

With shares of Google Inc. (NASDAQ:GOOG) trading at around $806.20, is GOOG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

“I’ll Bing it!” No, that’s doesn’t sound right.

“I’ll Yahoo it!” Not quite.

“I’ll Google it!” Much better.

The point here is that Google Inc. (NASDAQ:GOOG) dominates search, and it has done so for many years. Google is the most visited website in the United States as well as the entire world. There over 4.7 million sites linking into Google.

For those who think Google search might be slowing, consider the following numbers. Over the past three months, pageviews have increased 8.11 percent, pageviews-per-user have increased 7.07 percent, time-on-site has increased 5.0 percent, and the bounce rate has declined 9.0 percent. These are all positive numbers. Then there’s YouTube, which is owned by Google. YouTube is the third most visited website in the United States as well as the third most visited website in the world. There are over 3.7 million sites linking in. Over the past three months, pageviews have increased 15.30 percent, pageviews-per-user have increased 6.4 percent, time-on-site has increased 6.0 percent, and the bounce rate has declined 6.0 percent. Once again, these are all positive numbers.

Those aren’t the only positives for Google. Android shipments have increased 104.1 percent year-over-year. In addition to that, Google is looking to take on Amazon.com Inc. (NASDAQ:AMZN) in the e-retailer space. Google’s timing couldn’t be better considering the negative press Amazon is currently receiving in regards to sales tax and increasing fees for third-party sellers. Google looks to be more cost effective, and Google plans on offering same-day delivery as well as unlimited deliveries for $69 per year. It looks as though there’s a lot of opportunity for Google to steal market share from Amazon, but it’s still extremely early in the game.

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For now, let’s focus on two of Google’s biggest current rivals. The chart below compares fundamentals for Google, Facebook (NASDAQ:FB), and Yahoo! Inc. (NASDAQ:YHOO). Google is the clear leader with a market cap of $265.77 billion. Facebook has a market cap of $62.53 billion, and Yahoo has a market cap of $25.75 billion.

GOOG

FB

YHOO

Trailing   P/E

25.07

1750.00

7.14

Forward   P/E

15.08

33.65

19.32

Profit   Margin

21.40%

1.04%

79.12%

ROE

16.60%

0.64%

29.06%

Operating   Cash Flow

$16.62 Billion

$1.61 Billion

 -$281.55 Million

Dividend   Yield

N/A

N/A

N/A

Short   Position

1.90%

6.80%

2.40%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal    

The debt-to-equity ratio for Google is in line with the industry average of 0.10. All three companies listed below have displayed excellent debt management.

Debt-To-Equity

Cash

Long-Term Debt

GOOG

0.10

$48.09 Billion

$7.21 Billion

FB

0.20

$9.63 Billion

$2.36 Billion

YHOO

0.03

$4.18 Billion

$37.00 Million

 

T = Technicals Are Strong

The past month has been weak, but Google’s performance has been impressive for all other time frames.

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1 Month

Year-To-Date

1 Year

3 Year

GOOG

-1.86%

13.97%

26.93%

41.74%

FB

-3.93%

0.04%

N/A

N/A

YHOO

3.13%

17.64%

53.31%

43.71%

 

At $806.20, Google is trading above all its averages.

50-Day   SMA

793.58

100-Day   SMA

745.29

200-Day   SMA

703.74

 

E = Earnings and Revenue Are Strong           

Revenue has consistently improved on an annual basis, and there are no signs of a slowdown. The same can be said for earnings.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

21.80

23.65

29.32

37.90

50.18

Diluted   EPS ($)

13.31

20.41

26.31

29.76

32.31

 

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

10.58

10.64

12.21

14.10

13.22

Diluted   EPS ($)

8.24

8.75

8.42

6.53

8.61

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

Industry trends have been strong, but what needs to be understood about Google is that it’s a company that will establish a presence in industries that offer opportunities. Therefore, trends are always likely to support the industry somehow. The only significant threat is a global economic slowdown. This led to a significant drop in Google’s stock price in late 2008.

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Conclusion

Barring a steep market correction, Google is poised to see continued growth. This is a company that does almost everything right. It’s strong in many areas, including revenue growth, EPS growth, debt management, margins, innovation, management, and cash flow.

Google is an OUTPERFORM.

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