In its first few years as a public company, Google (Nasdaq: GOOG) was the poster child for inflated P/E ratios and pie-in-the-sky expectations.  That's not the case anymore as investors and analysts have turned a more skeptical eye on Mountain View. So does that make Google a no-brainer buy today? Let's have a look.

Let's start with the basics
Google's stock can be bought for a rather modest 18.5 times forward earnings now, which makes the stock look cheap in comparison to many of its peers and rivals based on the flawed P/E ratio metric:

Company

Forward P/E Ratio

Google

18.5

Apple (Nasdaq: AAPL)

19.2

Yahoo! (Nasdaq: YHOO)

26.6

Amazon.com (Nasdaq: AMZN)

35.0

Baidu (Nasdaq: BIDU)

39.8

Source: Capital IQ.

You'll find a few technology giants with lower P/E multiples than Google, but even then you have to come away impressed by Big G's fire sale in a long-term investment perspective. When you factor in the 5-year growth expectations from Wall Street's finest, Google lands at a PEG ratio of 0.95. Any value below 1.0 on that metric points to a potential value stock, with a few caveats. Neither Microsoft (Nasdaq: MSFT) nor IBM (NYSE: IBM) come close to breaking that barrier, even if their straight-up P/E valuations come from the bargain basement.

Where's the cash?
Earnings-based valuations fail to account for Google's cash flow powers. While earnings have grown by 28% annually over the past three years, Google's operating cash flow has jumped by 37% a year and free cash flow more than doubled year over year. The most Foolish way of slapping a valuation on a company is to apply discounted cash flow calculations.

Using the DCF calculator from our Motley Fool Inside Value service and plugging in some conservative numbers seems to reinforce the view that Google is cheap. Based on the analysts' estimate of 22% annual profit growth for the next five years and a 15% discount rate, the stock is fairly valued at $425 per share, or about 26% below today's share price. But 15% discount rates are typically reserved for risky small-cap stocks, which hardly describes Google anymore. A less pessimistic 10% discount rate values Google at $819 per share, more than 40% above current prices.

And I would argue that Google is a safer investment than most.

You might be mistaken!
Skeptics would point to how Google collects 97% of its revenue from online advertising. The old dot-com bubble may be long gone, but it's not forgotten; what happens if the concept of online marketing joins has-beens like the Pets.com sock puppet, the pet rock, and the Dodo bird six feet underground? Surely Google would be doomed.

Besides, the barriers to entry in online businesses like search and advertising are vanishingly low -- Google itself started with two kids building a search engine in their dorm room. The next pretender to the throne might be right around the corner.

The first of these concerns is mistaken in at least two ways. For one, Google is diversifying into new fields like mobile phone sales, alternative energy, and even TV advertising. The proportion of sales coming from sources other than online ads should expand over the next few years as Google matures into an IBM-like conglomerate model. For another, online ads are generating nearly $6 billion a year of Google sales now, but you ain't seen nothing yet. The Internet gives advertisers a more targeted and efficient channel in which to spend their ad budgets than TV spots or billboards ever did. As broadband access proliferates and marketing tactics adapt, online ads will soon overtake television and become the largest marketing channel of our time. And Google is the leader in that market.

The second objection holds more weight, because a better mousetrap could indeed be built by some college kid with too much free time. As an example, some might say that Twitter will kill Google's search business by providing real-time answers to any question by leveraging millions of human brains. Fair enough -- it could happen and Google might fail to acquire whatever hot start-up might threaten its dominance. There are no guarantees in business.

But could and might add up to a very slim risk. Google employs some of the brightest minds in technology and is not afraid to overpay for promising ideas if need be. Microsoft and Yahoo working together don't seem to pose much of a threat. If there's a start-up with the power to hurt Google, I wish 'em luck and hope to buy that stock someday. There just aren't any available. It's a risk I'm willing to live with.

The final verdict
So yeah, I think that Google is a screaming buy at $550 a share for many reasons. If anything, I believe that Wall Street's forecasts don't give Google enough credit, and Mr. Market isn't giving this stock the respect it deserves.

The market is a voting machine in the short term and a weighing machine over the long haul, and short-term valuation mistakes can make for serious long-term returns. That's what I see happening here. How about you? Join the discussion in the comments below.

Fool contributor Anders Bylund practices what he's preaching and owns shares of Google, but he holds no other position in any of the companies discussed here. Microsoft is a Motley Fool Inside Value selection. Baidu and Google are Motley Fool Rule Breakers picks. Apple and Amazon.com are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.