Google Inc Cl A (GOOG) – Attractive Rating – for Ask Matt Readers

Two introductory comments on GOOG, before I get to our free report and overview on our Rating, which was highlight by Matt Krantz today in: “Google stock: It may be peaking, but signs point to yes“.

  1. I recently commented on GOOG’s innovative capabilities in Private Sector to the Rescue Part 1: The Google Price Index and Better Markets, Inc.
  2. My position on GOOG has a rather long history. I was bearish at the IPO as the expectations embedded in the IPO price indicated GOOG would grow profits at an extraordinary pace (30% for 15 years and reach a 32% ROIC). Well, GOOG was able to grow its profit at an even greater pace than what was embedded in the IPO price. I was wrong. And I may be wrong again when it comes to once-in-a-generation stocks like GOOG. Simply, put there a some (more like a precious few) stocks that deserve to have Very Dangerous valuations. Those stocks are rare, but they do exist. Nevertheless, I would much rather bet against Very Dangerous Valuations most of the time and be right most of the time though I may be wrong in rare instances with extraordinary companies like GOOG. Can’t win them all, but our strategy has been successful winning more than 50% of the time. See Proof Is In Performance and stock-picking accolades.

Google Inc Cl A (GOOG) earned our Attrac­tive Rat­ing. To get this rating, GOOG achieved excellent quality-of-earnings (1) pos­i­tive and rising eco­nomic prof­its (as dis­tinct from account­ing prof­its**) and (2) a cheap val­u­a­tion. As shown in our free report on GOOG, the company’s ROIC (at 37%) is in the Top Quin­tile of the 3000+ compa­nies we cover. At the same time, the stock boasts a 4.2% FCF Yield.

HIDDEN GEM: GOOG has over $24,100mm in Excess Cash, a reflection of the profitability of the business and a 64% deduction to Reported Net Assets for our Invested Cap­i­tal calculation.

See Appen­dix 4 to learn how GOOG increased NOPAT by and increased its NOPAT Mar­gin as expenses grew more slowly than revenue. See Appen­dix 5 for details on how GOOG decreased its Invested Cap­i­tal. Appen­dix 7 (in the Return on Invested Cap­i­tal (ROIC) sec­tion) shows how the improved NOPAT Mar gin and Invested Cap­i­tal Turns result in an increase in ROIC (to 37% from 29%) and Eco­nomic Profit, which rose by $1,312mm while Net Income rose by $2,293mm during its last fiscal year.

As per  and , GOOG has Attrac­tive Risk/Reward.

**See  and Eco­nomic Ver­sus Account­ing Prof­its for more detail on why account­ing prof­its are not reli­able indi­ca­tors of cor­po­rate prof­itabil­ity or value creation.

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