Google and the DoubleClick Drag

The European Commission will decide tomorrow (November 13th) if it will allow Google to acquire DoubleClick.

Google Inc. (NASDAQ:GOOG) stock has been in free fall for the past four days. It has dropped over $100 from a high in the 740's to a current price in the 630's.

This has been a very bad few days for the technology sector in general. After surpassing all other industry categories by a handsome margin this year, the techs are being cut down to size. Google's drop has been equivalent or less in percentage to other key tech players such as Apple, Baidu, RIMM, AMZN and Cisco.

But the stock seems clearly undervalued compared to these other players. It is only trading at less than 32 of 2008 P/E levels. And those forecasted P/E levels are bound to be upgraded as Google looks set to grow earnings at least 45% next year over this year but analysts are still estimating a growth rate of only about 32% next year.

So why hasn't there been huge buying activity on this great dip in the stock price?

My guess is that the answer to this will come in tomorrow, Tuesday the 13th.

This is because this is when the European Commission makes it's decision on the Google Doubleclick deal. And it is by no means certain they will approve the acquisition. In fact, it is quite likely they will either decline or else ask for a four month extension on their deliberations.

This is why Google has not gotten much buying support over the past three days. The smart money is waiting for the ruling. They know if the decision is negative for google they will be able to pick up the stock at an even cheaper price tomorrow. Perhaps even $50 cheaper.

The price activity of the stock almost makes me think that some of the smart (insider) money are already privy to the decision. And they know it won't be good news for Goog.

As an investor in Goog I was afraid this might happen. And I deliberated selling a chunk of my shares a few days before the ruling. But i decided not to because in the larger scheme of things I don't think being denied DoubleClick will slow down the Goog very much and I didn't want to get off the train for fear I wouldn't be able to climb back on again. In the short term (maybe just a few days) it will further drag down the stock price some more but overall this engine of the internet economy is not going to be hurt too much by the absence of DoubleClick in its asset pile.