- Aug 10, 2001
- 10,420
- 2
- 0
That comes out to a P/E ratio of 109.17. WTF?!? 
http://money.cnn.com/quote/quote.html?shownav=true&symb=GOOG
http://money.cnn.com/quote/quote.html?shownav=true&symb=GOOG
A share of Google stock is valued at $255.45
- Thread starter Random Variable
- Start date
Yes it's about 2.5 X the IPO price, and with an insane P/E ratio. You have to assume earnings will quadruple to justify the current price compared to the P/E of Microsoft.
It's definitely an incredibly risky stock to be buying right now.
Forward expected EPS next year of around $6.50/share gives this stock a forward P/E around 40, which is less than that of eBay.
If a company gives you stock, you own it and can sell it at any time and pocket the money.
If a company gives you options they are just the right to buy shares at a certain price ("strike price") usually something like the stock price at the time you are granted them.
The idea is that your 10,000 options at $250 at share give you an incentive to help raise the stock price higher -- if the stock price climbs to $300 then your options are now worth $50 a share to you (current price - strike price).
If the stock value falls below the strike price, your options are worthless -- the right to buy a $100 stock at $250 a share isn't a very useful right.
You essentially sell shares which do not belong to you and are loaned to you on margin, then hope the stock price DROPS.
So assume you short sell 40 shares of Google at $250 apiece = $10,000 proceeds are now available in cash.
When your margin is called or whenever you feel like "covering" your short, you must repurchase shares to return to the original owner...
If Google shares are now $200, then you pocket $50/share in profit because you only have spent $8000 of the original cash proceeds = $2,000 in profit.
However, if Google shares have RISEN, you lose money on your short because you need to pay more out-of-pocket to cover those shares you sold short.
So if Google goes to $300, you have gotten screwed $50/share (need to pay $12,000 to repurchase those 40 shares) and are now in the hole $2000.
Miramonti
Lifer
- Aug 26, 2000
- 28,653
- 100
- 106
How does the current PE calculate to 109? Over the last 4 quarters, they earned $3.49, which comes out to a PE of 74.5 ($260 / $3.49).
And if you calculate First Call's fiscal year 2005 average estimate of $5.13, it comes out to a PE of 51.
And looking forward, their EPS next year is guestimated to be 28% over 2005 earnings ($6.57 vs. $5.13), making the 'forward PE' much more paletable.
After looking at this, if I'm not mistaken in these calcs, its not as much 'irrational exuberance' as I thought, even tho by conservative fundamental measures, its still plenty overvalued (as with the case with many other stocks.)
I think their recent quarter's earnings of $1.29 surprised a lot of people, and made people rewrite their growth and earnings estimates. (not to mention that their potential search rivals (MS and yahoo) don't seem to have been succeeding in taking a bite out of google's share that may have been earlier anticipated...as well as google's recent hint of getting into the portal business)
And if you calculate First Call's fiscal year 2005 average estimate of $5.13, it comes out to a PE of 51.
And looking forward, their EPS next year is guestimated to be 28% over 2005 earnings ($6.57 vs. $5.13), making the 'forward PE' much more paletable.
After looking at this, if I'm not mistaken in these calcs, its not as much 'irrational exuberance' as I thought, even tho by conservative fundamental measures, its still plenty overvalued (as with the case with many other stocks.)
I think their recent quarter's earnings of $1.29 surprised a lot of people, and made people rewrite their growth and earnings estimates. (not to mention that their potential search rivals (MS and yahoo) don't seem to have been succeeding in taking a bite out of google's share that may have been earlier anticipated...as well as google's recent hint of getting into the portal business)
Basically going long on a position has a finite amount of risk. That is, you buy a $10 stock, the most you can lose is $10.
Going short on a position has an unlimited amount of risk. That is, you short a $10 stock and get called when it is worth a googol you lose a googol - $10.
Going short can be risky. Just ask folks who tried to short TravelZoo.
P/E means little with these kinds of companies. Just look at their R&D expenditures, they're huge, thats what really important. It means that they will continue to grow.
Looking at P/E offers a very narrow viewpoint of a stock.
Looking at P/E offers a very narrow viewpoint of a stock.
Yep, I know someone that shorted Google at 200. Needless to say, they lost a ton of money, but they had a stop loss order that limited their loss.
Uhh, yeah you do if you don't have the assets to cover the margin.
Kipper: True, stop losses can keep you from losing more than you want to but the downside of shorting is much more risky than that of going long as a rule.
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