Share price?

Question

Are people taking an awfully big risk when they invest in an internet company like Google.

Their profit is relatively tiny for a company with such a high share price. Why invest so much money in a firm that only shows a small net profit. Google doesn't make anything or even sell that much.

Google may be a safe venture to invest in but surely the return on investment will only be very small.

Its P/E is only average so why invest so much money?

What does Google sell? I'm new to the stockmarket so I apologise for any simple questions but I have heard that some of the best investors like Warren Buffet use common sense above everything else.

Answer 1

As with so many new investors or traders, you have not defined your time horizons and style yet.

A similar question: where is the stock market going? Answer: It is unanswerable without further clarification. In what time period? Tomorrow, next month, next year, or in the next few minutes?

Neither can you nail down risk with a P/E and balance sheet. But as a trader using technical analysis, buying near support or an Uptrend Line, I have not only clearly defined my actual risk, I have substantially reduced my risk. By adding a target near Resistance areas, I can define my risk/reward ratio (2:1 or better is good). As a trader, I want something that moves, and Google qualifies. I could care less what the p/e is, if I'm only looking for a $10-$20 pop.

Most "investors" don't want to acknowledge there are two sides to every market. What good is a p/e if I'm short Google?

The "Buy-and-Hold" strategy really doesn't hold water if you consider it depends on when you "buy." You might go 25 years without a profit, if history is any guide. But if that is your deal, then go for it.

If you wish to research the “Buy and Hold Strategy” further, or perhaps trade yourself, I recommend two book titles. One is called "Which Is Better, Buy-and-Hold or Market Timing?" The other is "Do You Have What It Takes to Be a Market Timer?" They will give you plenty to think about.

Answer 2

As you can see from the previous answers the opinions are divided.

Many people look at Google and to a lesser extent Yahoo as a great growth oportunity and value them accordingly.

But there is a great deal of risk in doing so. What do you think will happen to the stock price if advertising revenue grows at less than 25% annually as it may very well do in a business slow down. Look at what happened to Yahoo in 2000. It dropped from $100 a share to a low of under $5.00 a share. There is nothing like lossing 95% of your investment to make you really feel great except maybe loosing it all.

Answer 3

The P/E for that industry is 54 and google is 55. So is it really that big of a risk if they are trading within the industry P/E?

Plus not to mention that you never know what people will do. If somebody wants to buy shares at a higher price then who am I to stop them.

Answer 4

Personally, I wouldn't care if it was average industry p/e or not....looking at p/e in real terms, in the example of Google with a p/e of 55, why would anyone invest in a company that would take you 55 yrs worth of earnings to pay you back your investment? If the p/e was important to me, I would much rather invest in companies whose earnings would pay me back in a shorter period of time.....but, as a technical analyst, if it had a great chart, I wouldn't care what the p/e was....

Answer 5

Have you looked at their financials laterly? Google has quite a few assets and a lot of cash. It also has viable products and an advertising revenue unparallel in the industry. It's a solid investment.

Answer 6

google is diversifying into all different types of fields - i wouldnt be surprised if everything in 10 years was owned by them and tesco - then that would be a good time to have said 'glad i bought them shares'

but yeh true - i wouldnt buy any shares in a dot.com anymore - yet .... google is channnnggggggingggggggg