Google's Growth and P/E Ratios

Google revenues didn't grow as fast as I had expected in the last quarter. But I'm still convinced the slowdown in their growth rate is a temporary breather, as they ramp up their various markets. This quarter will probably surprise everyone. I'm looking forward to their earnings release on October 18th.

Here's the best analysis I've seen on the web so far for why this stock is undervalued. Jason of Investor Geeks says Google is actually a value play. Here's his excellent hypothetical calculation;



GOOG 2006 EPS: $10.58
EPS Growth: 20%
EPS in 10 Years: $65.51 (This is simply calculated by compounding our starting EPS by 20% for 10 years)
Average PE: 32 (Or more specifically what we can expect the PE to be in 10 years.)
Future Value: $3,078.90 (Simply the future EPS x the future PE)

This assumes Google's EPS will only grow at 20%. I'd be surprised if actually averages less than 35% annually over the next five years.

See his full discussion about Google is a Value Play here.