Another shot at the greatest business model the world has ever seen?
“Another shot at the greatest business model the world has ever seen?”
I think so. At these prices for me it’s just a question what fraction of my portfolio I want to have in GOOGL. Could GOOGL drop another 27%, as it has from its high? Of course, but that doesn’t make today’s price bad. I like GOOGL’s product, their profitability and their motto, “Do no evil.”
5 Likes
Conservative valuation.
5yr average eps 2.81
10 years @ 12% pa growth = 8.73 eps x 20 earnings equates to $174
4.69% conpounded over 10 years.
Just saying.
4 Likes
Conservative valuation.
5yr average eps 2.81
10 years @ 12% pa growth = 8.73 eps x 20 earnings equates to $174
4.69% compounded over 10 years.
A sensible way to start.
Though I would suggest that using five year average earnings is pretty conservative for a firm that has still been growing at 22%/year in that date range.
They’re doing 2.7 times as much business now as they were at the earliest months in the five year average.
Their earnings do go up and down a bit, so I agree that the latest earnings figure isn’t the best starting point.
One way to estimate the “on trend” figure is to start with sales, which have a much steadier trend.
Net margins have averaged 21-22% for quite some time, so (say) 20% of TTM sales would suggest a slightly normalized trailing earnings figure of $4.25. (vs actual of $5.11)
With your other assumptions, using $4.25 gives an ending notional price 50% higher, or 9.0%/year.
I expect somewhat more as a rate of return from here, though I don’t count on it.
That’s because I expect a few more years before trend value growth per share slows to 12%/year.
In case anybody is interested, a similar post of mine on another board
https://discussion.fool.com/fka-googl-again-35158300.aspx
It runs through similar reasoning, slightly different assumptions, and figures that a fairly
conservative but gradual slowdown and some corresponding multiple compression could still get you around 8%/year.
In any case, the downside seems minimal. They just make too darned much money to make a horrible outcome very plausible.
They still have quite the market position in search—European share running over 92%, and I think that includes Russia.
Bing is #2 at 3.65%.
https://gs.statcounter.com/search-engine-market-share/all/eu…
I suppose a pessimist would figure that the only way from here is down!
Jim
18 Likes
On the basis of a bearish 70/80’s outlook. $70 dollars would give 10% annual return. Very Conservative but could be thus.