How Much Is Google Really Worth?

Google ($GOOG) certainly gets a lot of attention but the stock really hasn’t done that well over the past few years. Three-and-a-half years ago, the stock was around $725 per share. Since then, Google has slightly underperformed the S&P 500 (plus the S&P 500 pays a dividend and Google doesn’t).

So how much should Google be worth? That’s hard to say. Let’s take a very basic look. Wall Street currently expects Google to earn $33.90 per share this year.

The S&P 500 is currently trading at 13.85 times this year’s earnings estimate. If Google were carrying that multiple, it would be about $470 per share.

However, Google is projected to grow its earnings faster than the overall market. Wall Street currently expects Google to earn $39.49 per share in 2012. The S&P 500 is going for 12.2 times next year’s estimate. So if Google carried that multiple, it would be $481 per share.

In other words, Google’s growth premium adds some value but not a whole lot. The current price of $537 assumes a growth premium that lasts well into the future — and in my opinion — too far of a distance to make a reasonable estimate.

This is a very rough estimate of Google’s price. What I mean to show you is the amount of future growth investors are placing in Google’s price. Sure, it may pay off, but consider that Google’s much-hoped-for future hasn’t paid off over the last three-and-a-half years.

Posted by on May 4th, 2011 at 3:19 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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