Cons on GOOG Stock
Motorola Acquisition. It’s still been a drag on GOOG stock. After all, the much ballyhooed Google Moto X phone has been a disappointment so far. There have also been some notable PR flubs, with the most recent coming on Cyber Monday. The website melted down because of problems with the Moto Maker customization system — and that could have been a missed opportunity. The fact is that the handset market is brutally competitive, as seen with the implosions at companies like Nokia and BlackBerry. For the most part, Apple (AAPL) and Samsung (SSNLF) have huge advantages — in terms of their brands, infrastructure, access to supplies and the ecosystem. The good news for GOOG stock is that the company has a diversified platform … but the handset business could still suck resources and become a money pit.
Overstretched. This could perhaps be the biggest threat to the value of GOOG stock. That is, by being in so many businesses — with entrenched competitors — there is the risk of managerial distraction. In fact, this is a pretty common problem in the tech world. If the same thing happens to GOOG, it may mean that the company could neglect some of its core cash generators, such as AdSense and AdWords categories. This would certainly be a big problem for GOOG stock. And other companies have suffered from the same problem, like Cisco (CSCO) and Microsoft (MSFT).
Rich Stock Value. Gogle stock is far from cheap. Consider that GOOG has a forward P/E of 20, and there is no dividend payout. Plus, there are some more affordable alternatives, such as Apple. AAPL stock sports a low forward PE of 11 and pays a dividend of 2.3%. That makes GOOG stock pale in comparison.
Verdict on GOOG Stock
Again, Google stock does have some issues. By being in so many markets, it could be tough to manage the complexity … and the result could be the erosion of core Google businesses.
But then again, GOOG has the advantage of being a leader in high-growth segments like mobile, the cloud and video. The company also continues to invest heavily in R&D to maintain its competitive advantages … and also to make big bets on acquisitions.
True, the valuation on Google stock is not cheap. But this is to be expected, especially in light of the company’s strong position and long-term growth potential.
So should you buy GOOG stock? Yes — for now, the pros outweigh the cons on the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.