What's left to say about Google (NASDAQ:GOOG)? It's one of the fastest-growing companies in the world, if not the fastest. It's run by a couple of geniuses and staffed by thousands more. It's synonymous with "Internet search," and it's highly regarded for its commitment to innovation. What's more, the stock has quintupled since its IPO.
But Google is not universally loved. And investor sentiment is muddled. Naysayers point to the stock's valuation. Professor Aswath Damodaran of New York University, for example, valued Google at just $110 or so per share last year -- when Google was trading for approximately $300. Yet it's up 33% since then. The naysayers have been wrong about Google . so far.
The naysayers, however, persist. So here's the question: Does all of that recent price appreciation mean that traditional models can't comprehend Google, or does it mean that Google is a better short than ever before?
The naysayers speak
As it turns out, Google skeptics aren't just value curmudgeons. Of the 430 or so investors who have rated Google in our Motley Fool CAPS community intelligence database, 220 -- more than 50% -- have predicted that it will underperform the market going forward. Among CAPS All-Stars -- a caliber of investor defined by accuracy and market outperformance -- Google is shorted 58% of the time.
Why? Well, valuation is a big reason. As one CAPS investor writes, "Every tech fund owns it. [It's been] added to the S&P 500. Sky-high valuation. Who's left to love it?" Another investor, working backwards, hypothesizes that Google would have to grow 50% per year for the next five years to justify its current valuation. Is that possible? Sure. But remember: The higher the expectations that are priced into a stock, the harder it falls when the company fails to meet those expectations. For evidence, just take a look at the rough summers that befell Whole Foods (NASDAQ:WFMI), Yahoo! (NASDAQ:YHOO), and even Chico's (NYSE:CHS).
Here are five more reasons -- courtesy of CAPS -- to short Google:
- Failure to solve click fraud.
- Accelerating competition.
- Insider selling.
- The commoditization of online advertising.
- Lawsuit potential.
Agree? Disagree? Let us know!
Of course, CAPS is still in beta testing. Google's rating may be statistically insignificant. So if you agree or disagree with this assessment of Google -- or think something entirely different -- join CAPS and add your thoughts. You'll be rated alongside Fool analysts and Wall Street professionals. But everyone's ideas help make the system smarter.
Tim Hanson owns shares of Whole Foods and has rated that stock "outperform" in CAPS. Whole Foods and Yahoo! are Stock Advisor recommendations. The Fool's disclosure policy makes us more transparent than Jessica Simpson.
