Google Smashes Earnings

After the close yesterday, Google ($GOOG) reported very strong third-quarter earnings. The company earned $9.72 per share which was 98 cents better than estimates. The stock has gapped up as much as 7.2% this morning and it nearly came close to piercing $600 per share.

Here’s a look at Google’s stock along with its earnings-per-share. The share price is the blue line (left scale). The earnings is the gold line and it follows the right scale. The red line is Wall Street’s forecast.

I scaled the two axes at a ratio of 18-to-1 which means that the P/E Ratio is exactly 18 whenever the lines cross. (Note: Please don’t take 18 as my valuation of Google. I just thought the chart looks more readable using that ratio.)

From early 2010 to this summer’s low, Google’s P/E Ratio has been nearly cut in half. Here are two ifs — if Wall Street’s earnings forecast is correct and if Google trades at 18 times that, then the stock will be at $750 by the end of 2012. That’s a 27% gain over the next 14-and-a-half months.

Posted by on October 14th, 2011 at 11:26 am


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