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Google (Nasdaq: GOOG) is trying to hold its ground near 440.
Chart Courtesy of StockCharts.com
Don't look now, but Google is off some 40% from its all time highs reached in November 2007. The stock has fallen enough for what mainstream defines as two bear markets, each comprising 20% declines.
But that's in the past. And it seems to have been related to the recent news about revenue per click on advertising, which has been declining.
So the big question is whether the news can get worse, and whether all the possible bad news has been priced into the stock. Of course, nobody really knows that. But there are some things we can look at to get an idea.
First, there's the chart, which shows the stock having bottomed and starting to form a base. The low volatility also suggests that some kind of move is possible, and perhaps that move will be to the up side, since the stock, and the market are oversold.
Next, we should see if Google is expensive given traditional variation criteria. The P/E of 33 is still rich, viewed on its own, while the stock trades at 6 times book value and at 26 times its cash flow.
Still, the return on equity of 18% or so isn't too bad, and the gross margins of 65% is pretty impressive.
So what's the bottom line? At 440, Google is still a bit expensive. The way the stock will rally is if enough people are willing to pay up for the chance to own shares of a company whose best growth days, at least for this cycle, may have passed.
That is, of course, unless the company can do what it used to do on a regular basis, beat expectations and dazzle investors with its ability to turn ether into cash.
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