Google Rocks the House with Huge Earnings

Google reported earnings last Thursday and nearly doubled its profits from a year ago. Not many companies can say that they double their profits from a year ago, especially not when we are talking about Billions of dollars in Revenues. The stock didn't move 10% that I predicted, but around 7%. Still many brokerage houses think the stock is relatively CHEAP. How can that be? Well, the current stock price of a company is not based upon the last year or even the last quarter. Its really a projection of the future worth of the company. In other words, how much are you willing to pay today for one share of Google stock one year from now. That amount is quantified by a term called the forward price to earnings ratio. Google future price to earnings ratio is around 35X 2007 earnings. During their heyday, Ebay and Yahoo has a P/E ratio of around 70-80X earnings. Getting the point here? Wall street has with many brokerages houses lifted their 12 months price target on Google to $600 share. Also, don't count on a stock split any time soon. Google has made it clear that they arent concerned about splitting the stock. Some would argue that they are pricing individual investors "out of the market" with its rich price tag. I think its good and bad for the same reasons. Institutional investors tend to buy in bulk and they also tend to hold shares for a long time. In fact, 88% of Google's outstanding shares are owned by either INSIDERS OR INSTITUTIONS. See Google's chart above.