Why Alphabet (GOOGL) Is Going to $1 Million per Share!

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The following article is parody, does not contain factual information and does not constitute investment advice.

There are few stocks that have been more amazing, as far as performance, than Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). Since going public at $50 per share in 2004, GOOGL is now trading at $754, which is a 15-fold increase. Despite the ridiculous name change (we all still think of it as Google, right?), investors have bid up GOOGL stock, and some believe it will be bid substantially higher.

Google represents the magic unicorn for most investors. Put money in at an initial public offering and watch it soar! Google is, in many ways, the ultimate retail investor stock. Just invest money in GOOGL stock, know that its search engine owns the world, know that its data collection is sucking information out of everything, and relax.

The “Craps Table Effect”

An extensive long-term study of the stock market in comparison to casinos has been concluded by researchers on the British Overseas Territory of the Falkland Islands. Entitled “U.S. Stock Market Returns Exceed Casino Returns in Randomized Trials,” the paper concluded that random bets specifically on momentum stocks would, over time, lead to higher returns than playing a randomized series of casino table games.

This came as welcome news to momentum stock buyers, as the researchers put price targets on some of the most recognizable names in the market, and even a few obscure ones that they believe would become the next big gambling vessels for traders.

The research suggested that, while many stocks trade at valuations that are out of whack with most traditional valuation metrics, they are more likely to continue to trade at ridiculous multiples for extensive periods of time, and then revert to the mean at some point.

They called this the “craps table effect,” which refers to a casino phenomenon that occurs when a shooter at a craps table hits his “point.” Other players cheer and high-five each other, attracting other players to the allegedly “hot” table. Those gamblers throw down more money, and the amount of money on the table continually increases … until it doesn’t. When the shooter throws a 7, the air goes out of the table, and everyone goes to the bar to get drunk. That’s what mean reversion looks like in Las Vegas.

The “craps table effect” is the reason for the ongoing price momentum in major names. More and more traders and novice investors pile into the stocks, forcing their prices higher, with no regard for risk. This process, the researchers say, can continue indefinitely. Whereas the chances of rolling a 7 are 1-in-6 each time, the chances of a momentum stock crashing are less easy to predict.

Says lead researcher Dr. Hugh Jass, Ph.D.:

“After examining the behavior of thousands of stocks and backtesting back to the year 1947, we discovered that buying random momentum stocks are more likely to lead to higher overall returns over the long-term than casino gambling. Of course, this assumes you sell your momentum stock near the top and are not stupid enough to hold it as it falls even 1%. Oh, by the way, the long term average expectation in a casino is negative 5%. I’ve also lost my dog. Have you seen it?”

Jass mentioned a few big names and gave price targets as to where he believed each stock would top out.

  • For Facebook Inc (NASDAQ:FB), he suggested a price top of $437,894.12, with a standard deviation of plus-or-minus $438,000. That sounds like a buy to me!
  • For Tesla Motors Inc (NASDAQ:TSLA), he was less optimistic, seeing a price top of $123,456.78, with a standard deviation of plus-or-minus $130,000. That sounds like a buy to me!
  • He suggested the little-known manufacturer of squeaky wheels, Dovenshire of Rock Kincaid (NASDAQ:DORK) could rise from $2 to $288,967.13. Sounds like a buy to me!
  • And finally, for GOOGL, he shocked us by claiming the top would be “exactly $1 million.” His theory is that this 14-fold increase would repeat three more times over the next 36 years. That sounds like a buy to me!

The Moral of the Story

If you’ve made it this far, and read the disclaimer up top, hopefully you get both the joke and the underlying message. For GOOGL to trade at a price per share of $1 million, the presumption is that price follows earnings. To maintain its present price-to-earnings ratio of 31, EPS would have to reach $41,676 per share, which would mean net income of $22.296 trillion. That’s only 135% of the entire country’s GDP.

Alternatively, for a P/E ratio of only 6,200, it would only have to earn $162 per share, on net income of only $95 billion!

Net Income (in $B) EPS Price P/E
 $16  $30  $710  31
 $1,583  $2,959  $71,000  31
 $15,830  $29,590  $710,000  31
 $22,296  $41,676  $1,000,000  31
Net Income (in $B) EPS Price P/E
 $0.068  $0.11  $710  6,200
 $6.756  $11.45  $71,000  6,200
 $67.565  $114.52  $710,000  6,200
 $95.161  $161.29  $1,000,000  6,200

Analyst “price targets” are nonsense. “Betting” on momentum stocks rather than diligently researching companies to invest in is a fool’s game. The stock market is not a casino. While the expectation of stock market returns is positive over the long-term, because companies and economies are growing over the long-term, the house has a built-in advantage in a casino that’s designed to make you lose.

Never make a “bet” on a stock. Never assume that a stock will go in one direction forever. Momentum stocks always come back down to earth.

Research. Diversify. Buy for the long-term. Re-evaluate. That’s the key to stock market success.

This article is a parody and does not constitute investment advice or suggestions of any kind. The price “targets” are fictional, as is the company Dovenshire of Rock Kincaid. Lawrence Meyers has no position in any stock mentioned.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/alphabet-google-googl-goog-million/.

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