I've got a bone to pick with you.

A few days ago, we handed you the keys and asked you to drive us to the worst stock of 2007. You took us up on the challenge, put the pedal to the metal, and drove past money-losing satellite radio operators, retrenching real estate developers, and a company with holes in its shoes. You kept going, only to make a screeching halt in front of Google (NASDAQ:GOOG)?

I can respect your decision. I just don't have to agree with it.

In fact, I don't. Most of the arguments against Google center around either the stock's valuation or the durability of its business model. I think the world's most valuable Internet company is fitter than you think on both fronts, and I'm willing to show my math.

What's a Google worth?
It's easy to fall into the trap of numbers. Google came public at $85 two years ago, so it has to be overvalued at $468 today. That price is 130 times greater than the $3.62 per share price that bronze medalist Sirius (NASDAQ:SIRI) commands, so it has to be priced at a lofty level.

That is a rookie mistake. If Google were to declare a 20-for-1 stock split, would it suddenly be a better bargain because it was priced cheaper than rival Yahoo! (NASDAQ:YHOO)? Of course not! It's a zero-sum game. The market cap would still be the same, only with 20 times the shares outstanding.

So what is a better measuring stick of Google's frothiness or lack thereof? P/E ratios seem to be the most rudimentary of value gauges, so let's roll with that. Google is currently fetching 50 or so times trailing earnings and 34 times forward earnings. You probably thought it would be higher, right? You've seen companies with single-digit growth rates fetch more than 34 times year-ahead multiples, haven't you? Of course you have.

But wait. There's more.

Google's history has been that of a serial crusher of analyst targets. Save for one quarter in its abridged public history, Google has outsmarted the model-crunching pros in eight of its first nine quarters.

EPS est.

EPS actual

% difference

Q3 2004




Q4 2004




Q1 2005




Q2 2005




Q3 2005




Q4 2005




Q1 2006




Q2 2006




Q3 2006




Source: Thomson First Call

On average, Google has beaten analyst estimates by an average of 14% per quarter. If the trend is our friend, does that mean that Google will wind up earning 14% more than $13.75 a share in the year ahead? At $15.68 a share, Google would actually be trading at just 30 times its eventual bottom-line production.

But wait. There's more.

One can't go by that 14% mark, because analysts have actually been inching targets higher over the course of the year. The disparity has been far greater than that, and it's really the more accurate indicator.

A year ago at this time, analysts were expecting Google to earn $8.55 a share in 2006 and $11.16 come 2007. Today? Those tallies are now 21% and 23% higher, respectively. So let's split the difference and spot Google the ability to earn 22% more than the $13.75 that Wall Street is banking on. Is Google really insanely overvalued at 28 times its eventual 2007 earnings?

But wait. There's more.

This contest was all about seeing a year into the future. Let's say that Google hits what would be $16.78 a share in trailing earnings (22% higher than $13.75). Let's assume that growth in 2008 will be projected to climb just 30% higher. If Google shares are flat for the year, isn't 21 times forward earnings cheap enough for you?

But wait. There's more.

You're expecting Google to take a serious spill in 2007. Will it lose half its value to trade at 10 times forward earnings? Will it lose a third of its value to trade at 14 times forward earnings? If my numbers are spot-on -- and they are really just the extrapolation of Google's past -- how confident would you be in Google slipping at all in 2007?

Plan B: Fault the fundamentals
The one big flaw in my number-crunching is if there is a bug in the system. What if paid search peters out? What if Yahoo! or Microsoft (NASDAQ:MSFT) are so successful with their revamped online advertising solutions that they begin either to eat into Google's market share or to drive down the keyword bidding for interested leads?

Okay, let's go there. Yahoo! has actually been in paid search for longer than Google. It acquired the pioneer in Overture. Microsoft is a bit new to the game, yet Google has always been competing with a sea of smaller players, like MIVA's (NASDAQ:MIVA) FindWhat.com and LookSmart (NASDAQ:LOOK), and has done just fine. There is enough pie to go around in paid search, and it's clearly a growing pie as more companies earmark a greater percentage of their ad budgets toward Internet lead generation.

Contextual marketing is superior in so many ways to more conventional forms of sponsorships, but let's also point out how Google has been striking up content deals with many of the high-traffic sites outside its own domain.

That's the perfect cycle for Google. Content providers turn to Google to populate their pages with ads because Google has the bigger network of advertisers. That translates into more compelling targeted ads, or a high clickthrough rate at a competitively high price for the third-party publisher.

I've heard folks complain that Google is vulnerable to rivals like Yahoo! or Microsoft's Live.com or IAC/InterActiveCorp.'s (NASDAQ:IACI) Ask.com coming up with better search products, but it's a naive notion. Who cares at this point? The battle has moved beyond the search engine landing page, and Google's got friends in high-trafficked places.

Another argument that I have come across claims that Google isn't as sticky as many of its rivals and that will cost it some eyeballs. It is light on the killer apps beyond search, and that makes it painfully easy to switch to a rival search provider. Have you seen Google lately? Use Google's Writely to write yourself a note about your bearish prediction. Hit me up on my Gmail account in a year -- do use the Google Calendar feature so you don't forget -- and we'll see how things stand. I like my chances.

Still disagree with me? That's your right. You can lash out at me on the CAPS page for Google that ignited my rant in the first place.

Google on, my friend. Google on.

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Microsoft is an Inside Value recommendation. Yahoo! is an active Motley Fool Stock Advisor pick.

Longtime Fool contributor Rick Munarriz is a huge fan of Google, and it would be his homepage if it weren't for Fool.com taking up that piece of real estate. He does not own shares in any of the companies in this story. Rick is also part of the Rule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has adisclosure policy.