Dueling Fools: Google Bear Rebuttal

Well, heck. If Tim wants to argue valuation, I guess I'll argue valuation. After all, this is the value investor's home turf, and if ol' Rule Breakin' Tim wants to play an away game, who am I to say no?

The fact of the matter is, I think Tim's done his math teachers right proud. He's valuing Google (Nasdaq: GOOG  ) at $100 per stub less than the company is currently trying to sell its latest batch of shares for. So about $200 or so.


We need a diagnosis. Is there a doctor in the house?
But according to Professor Aswath Damodaran, of the Stern School of Business at New York University, who recently posted a detailed valuation (this will open an Excel spreadsheet) for Google on his website, Tim's not discounting Google's cash flows far enough. Peruse the numbers to your heart's content -- or even better, buy the good doctor's book and learn where the numbers came from. But the short answer is this: Professor Damodaran values Google shares at just $110 and change.

Choose your battles (and your comps) wisely
After admitting that, by his own calculations, Google is vastly overvalued, Tim proceeds to make a few choice comparisons, suggesting that Google isn't as overvalued as Yahoo! (Nasdaq: YHOO  ) or eBay (Nasdaq: EBAY  ) . Which is kind of like saying that that rambler you just paid $500,000 for isn't as overvalued as its twin two blocks down, which sold for $525,000.

But let's check out the rest of the neighborhood, shall we? Look at, say:

  • Rule Breakers pick Blue Nile (Nasdaq: NILE  ) . It, too, has analysts all agog over its 30% projected growth rate. Yet its trailing P/E of 55 offers a 35% discount to Google's valuation.

  • Co-Rule Breakers pick (Nasdaq: NTES  ) , which has a 34% projected growth rate and a P/E of only 35 -- a 59% discount to Google.

  • Shanda Interactive (Nasdaq: SNDA  ) ? 35% projected growth, 23 P/E. Discount: 73%.

Each of these three companies has at least three things in common. First, they're all vastly cheaper than Google. Second, they're all expected to grow at least as fast as Google. And third -- not coincidentally, they've all been endorsed by Motley Fool Rule Breakers.

Which isn't the case for Google.

Which is why you shouldn't buy it.

You're not done. This is just one part of a four-part Duel! Don't miss Tim Beyers' original bullish case for Google, followed by Rich's bearish twist and Tim's rebuttal. When you're done, you're still not done. You can vote and let us know who you think won this Duel.

Fool contributorRich Smithdoes not own, nor is he short, shares of any company named above. If he did (or was), The Motley Fool would require him to tell you so. We're sticklers about things like that.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 497079, ~/Articles/ArticleHandler.aspx, 10/22/2016 12:34:25 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 15 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
EBAY $29.06 Up +0.04 +0.14%
eBay CAPS Rating: ****
GOOGL $824.06 Up +2.43 +0.30%
Alphabet (A shares… CAPS Rating: *****
NILE $35.55 Up +0.35 +0.99%
Blue Nile CAPS Rating: **
NTES $263.53 Down -0.97 -0.37%
NetEase CAPS Rating: ****
SNDA.DL $0.00 Down +0.00 +0.00%
Shanda Interactive… CAPS Rating: ***
YHOO $42.17 Down -0.21 -0.50%
Yahoo CAPS Rating: **