Interesting question and 2 answers I found on Google Answers while researching the stock prices of Yahoo! Inc. (YHOO) and Google (GOOG).
Wonko is unsure that Google will touch 500 or 550 while answering the question about Google's stock price:
...If Google maintains its expected growth rate over the next year, can it be reasonably expected to reach $550 per share. The current analyst estimate for earnings is $8.71 per share. This would give Google a PE of 63.15 on a trailing 12 months basis if it achieves its expected growth rate of 47.9%. Its current
PE is 103.29. Google's five-year growth rate is expected to be 30% per year, whereas Yahoo is expected to grow at 25% per year. Yahoo's PE is only 37.25 on expected growth next year of 28.8%.
It is clear that Google's PE will decrease if its growth rate decreases as anticipated. This compression may be quite dramatic if the market has priced in continued favorable earnings surprises that do not occur. Merely meeting its expected growth rate may actually significantly disappoint the market because of its strong history of exceeding estimates.Although the company's market share may be as high as 64%, the market's growth rate is expected to slow considerably to between 20 and 40% a year beginning this year. To maintain its current growth rate on online advertising sales alone, Google would have to grow its market share significantly, and I question whether it can do that.
Ryanwegner is bullish on google. He quotes Mark Stahlman of Caris and Co that the correct estimate should be $ 2000.
Google...has considerable potential to grow. Stahlman estimates that Google's share of the $2 trillion digital services market, which he says has the potential to
expand to $10 trillion annually...He arrived at his theoretical price -- by multiplying the 6.2 multiple that Microsoft now fetches on an enterprise-value-to-trailing-12-months-sales basis by what he sees as Google's potential $100 billion in revenue.
Mark Stahlman, the technology strategist at broker CarisCo., figures
Google will ultimately garner 1% of the global digital- services
economy, which will include everything from buying books to paying a fee
to store your medical and financial information. As a result, Stahlman
says, Google's revenues could grow to a cool $100 billion, which would
justify a long-term target of $2,000 on the shares.
Firstly, I think that given its smaller life as a company, Google is over valued. Secondly, Google's 99% revenue dependence on Search advertising and failure to find a diversified product line is dangerous. Good times and upgoing economic cyles dont last. Downturns happen. Spending on advertising etc will go down with a downturn. Will $ 2000 happen? Or will Amazon.com (AMZN), eBay (EBAY), and Yahoo! just sit quiet and do nothing?
