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 NetEase.com (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 contributor Rich Smith does 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.