Continuation of the cash topic.
I’m looking at their financial on google/finance and it looks pretty. But I’m no expert.
http://www.google.com/finance?q=NASDAQ:GOOG&fstype=ii
In the last 5 Q’s which have been very difficult for most companies, even great companies, Google’s assets are up several billion dollars, about 15% total.
They have 5.895 Billion in CASH.
With equivalents and short-term investments, they have 24.4 Billion. That doesn’t count infrastructure and fixed assets. Just liquid and near-liquid.
Total debts: $0.00
Total Liabilities: 4.492 Billion.
In cash alone, this company is worth a billion and a half dollars.
And this is after a year in an economy that has sucked. How good are they going to look in the coming 3 to 5 years, assuming even a modest economic recovery?
Why is MSFT a better buy? What is a “good price” on GOOG? PE ratios, Market Cap, explain those words to me in the context of Google vs Microsoft. If not just for my benefit, then for the benefit of everyone else who reads this now, and in the future.
I’m standing by, waiting to be educated.
If you were a true billionaire, and could keep ALL EARNINGS for yourself, would you pay $179 BILLION dollars for $6.5 BILLION in profits each year? If you answer YES, then keep in mind that it would take you 28 years just to make back your original investment (assuming that the business doesn’t grow any more).
The point is, you REALLY, REALLY, REALLY have to assume that GOOGLE is going to grow much more from here to justify this price. The bigger a company is, the harder it is to grow!!!
I’m not saying that it won’t happen. I’m just saying that there are probably better opportunities in the market!
Sales growth was reported to be about 8.5% (www.msn.com) last year, yet if you compare to the other corporations it’s sie (KO, MSFT, etc) they all carry a pirce of about 15 times earnings. This means that the current $530 price for GOOGLE has already priced in a DOUBLING of sales (100% growth). This means that the stock price already has priced in about 6+ years of growth (at 8.5% each year).
Is that going to happen? Probably… But why would you want to buy something at such a premium? This is equivalent to someone telling you, “Hey man. Buy my house for 600K. Sure, it’s only worth 300K in today’s market, but I promise you that in 6 years, it will be worth 600K!!!” Would you buy it???
With a company like this, you are better waiting for a strong market correction, etc to buy in to get it at a better price.
So that’s what PE ratio means, if you bought the whole company at that current stock price, the PE Ratio (in this case 28) is how many years at it’s current profit that it takes to break even on your purchase.
The PE ratio is not static, it changes day to day based on stock price, and quarterly on earnings.
I can understand that much better than the wikipedia article.
Now, how does market capitalization come into play?
On second thought…
If you paid $179 B you are also getting all the assets, cash and short-term investments are $24.4 B and $40.496 total assets.
So, you are actually in $139 B and your investment is paid back in 21 years. Assuming growth, probably much sooner.
Hold the tomato, fool!
Market Cap is total number of shares times the price of the stock. In other words, if you bought the company (all the shares), that’s how much you would pay.
PE is the market cap divided by company earnings (“Price to Earnings”).
If you were strolling through Charleston looking to buy a business, then you are VERY concerned with EARNINGS as that is what you are really buying (thats the return on your investment). You wouldn’t pay 1 million dollars for a business that only made to 10K in earnings a year (1% return)! Though you might be willing to pay $100,000 for it (10% return) The same goes for public corporations!!!
quote:
Originally posted by Turkey and Swiss
On second thought…
If you paid $179 B you are also getting all the assets, cash and short-term investments are $24.4 B and $40.496 total assets.
So, you are actually in $139 B and your investment is paid back in 21 years. Assuming growth, probably much sooner.
Hold the tomato, fool!
Yes, assets are important assuming that they are "worth" something, but earnings and the accumulation of MORE assets is even more important.
Again, it’s not that GOOGLE isn’t a great company. It’s just the fact that too many people have bid up the share price and you are overpaying at this point. Just like my house example… My house might be fantastic for 300K, but it might not be worth the 600K price that I am asking from you! Surely, you would want a better deal.