Wednesday, June 28, 2006


I previously mentioned we are in a bear market. Google in my mind is a stock that will suffer tremendously at the hands of the bears. PE of over 70 , stock price that has quadrupled in less than 2 years and expectations higher than that of Brazil winning the soccer World Cup. All said, GOOG could be in for a nasty fall . The 50 day moving average is around $393 and currently GOOG sits above $400. You can be sure GOOG will drop below its 50MA within the next few weeks to its 200MA at $383 and than even below that. The expectations to beat earnings soundly are already priced into the stock and blowout earnings, may only lift the stock 20 points or even less. On the other hand, any hint of disappointing earnings or even just meeting earnings, could drop this stock an easy 50 points like we saw in early February, when GOOG lost nearly a 100 points in just over a week.You even have the Google CFO admitting that growth may not match investor expectations and is clearly slowing yet, multiples have not been cut. It seems unlike most Wall Street analysts, I still remember Yahoo, the spectacular expectations everyone had and that $500 stock price on January 4th 2000.Taking splits into account, Yahoos share price has fallen a spectacular 75% from its peak. What happened ? People saw growth slowing, cut multiples and this is the end result. Now you have Google with sky high expectations priced into the stock. Expectations are not met for December 05 quarter and GOOG drops like a rock. Expectations are exceeded for March 06 quarter and GOOG only jumps 25 points and than proceeds to lose 50 points in the coming days. This clearly indicates that there is far more downside to this stock than upside.It also appears a lot of fund managers used the March quarter profit beat to reduce their holdings of the stock. With the bear market upon us, GOOG is likely to have a very rough road ahead.

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