Anyone? Anyone? Bueller?
Fine business, but call me when it’s cheaper.
With a few exceptions, earnings are relatively steady so old fashioned P/E isn’t such a bad starting point for spotting cheaper-than-usual and richer-than-usual moments.
Multiples were basically never over 22 for a decade ending 2015, and never even peeped above 20 2008-2015.
So today’s figure over 26 isn’t on the surface of things an obvious strong call to action.
Jim
Cheapo
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My moth-like attention span picked up some more GOOG instead.
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My moth-like attention span picked up some more GOOG instead.
Hmm. A while ago I set an alert on GOOG at the ridiculous lowball price of 105. Today Etrade emailed me that GOOG hit that price.
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Multiples were basically never over 22 for a decade ending 2015, and never even peeped above 20 2008-2015.
A decade of going nowhere. Interesting choice of period. Satya’s Microsoft today is different company than Steve Ballmer, rudderless decade. Do a logarithmic scale chart, that will be very easy to see.
Between 2000 to 2015 Softy went nowhere, and the stock ripped on Satya’s ascension to CEO.
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I increased my GOOG position by 20% going into the close today, as my portfolio was getting clocked.
It seems like an earnest young startup with profit potential.
Multiples were basically never over 22 for a decade ending 2015, and never even peeped above 20 2008-2015.
So today’s figure over 26 isn’t on the surface of things an obvious strong call to action.
The issue with using historical PE trend lines is that their business is quite a bit different from 2008-2015. Not saying it necessarily justifies a higher multiple, but I don’t think the comparisons are like-for-like.
tecmo
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Multiples were basically never over 22 for a decade ending 2015, and never even peeped above 20 2008-2015.
Well, when a business has undergone a dramatic transformation, maybe using historical data–as opposed to current analysis–may not be the best approach.
At the beginning of the last decade, one could have foolishly talked themselves out of an investment in Apple, for example, by saying that the Mac had a small market share, the iPod was tired, and “the multiple is too high”.
None of this is to say that Microsoft is 1) a wonderful business, or 2) attractively priced. But it is to say there’s not much useful to be learned by studying the Microsoft of a decade ago.
As for me, I think it is one of the few modern-day “Inevitables”–indeed, very likely far more so that either Coca-cola or Gillette were back when Buffett coined the term. And it is reasonably priced based on that.
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None of this is to say that Microsoft is 1) a wonderful business, or 2) attractively priced. But it is to say there’s not much useful to be learned by studying the Microsoft of a decade ago. – commoncents
As you say, a decade makes a difference…It is well known that Amazon’s AWS is the driver behind the business.
Microsoft is changing too. Remember AWS? Big change for Amazon. Microsoft’s Azure (the name of their cloud system) is growing at a rate of 40%.
The past might not be indicative of the current path.
I don’t own MSFT, but I know that the past is not necessarily representative of them.
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional.” Charlie Munger
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“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional.” Charlie Munger
Maybe the best investment advice of all time.
The correct lesson from that is, most investors are not “professional” investors and they should diversify, a product like SP500 gives plenty of diversification, while capturing the top 500 corporations growth.
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My conservative estimate.
5 year average earnings 6.13, 10 year growth @ 15% and a multiple of 20 = 496
10% annual return on these metrics would be an entry price of 191. Still someway off.
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Goog?
3 year average earnings 3.66 x 10 years at 15% x 20 = 296
10% annual return on these metrics would be 114 entry price.
I looked at 5 year average earnings but Jim told me off for for it being too unrepresentative for Goog, perhaps 3 is more realistic.
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5 year average earnings 6.13, 10 year growth @ 15% and a multiple of 20 = 496
10% annual return on these metrics would be an entry price of 191. Still someway off.
10 years is a long time to be predicting, also they earned $9.21 per share in the past 4 quarters. They are also buying back a lot of shares so EPS should rise more quickly than revenue.
I think in the next 3 years revenues could grow at 18% - 20% range, which would get them to $350B, my sense is that EPS could double to $20 / share. A multiple range of 20x - 25x would get you to $400 to $500 per share in 3 years. If things go well, a double. (and I don’t see any major headwinds in their business right now).
Reminder: They will likely have the ACTI business integrated by then - more potential tail winds.
tecmo
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I posted a forecast of $130 / share by next spring on the Google board.
tecmo
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