Between going head-to-head with other tech giants in the intellectual property wars and buying out Motorola Mobility (NYSE:MMI), Google (NASDAQ:GOOG) has been keeping busy. The stock has been treading water over the past several months, but with so many irons in the fire, could this stock be headed for a turnaround?
Let’s dig into the details.
As the company behind the world’s most advanced and popular search engine, Google is a major player in the tech sector. However, the company clearly isn’t satisfied with simply having the world’s most visited website, because Google has been expanding in to a variety of tech-based markets, including social networking and even mobile phones.
In fact, Google’s Android operating system powered more than half of smartphones that were sold in the first quarter. Google’s main competitors are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Yahoo! (NASDAQ:YHOO) and Facebook (NASDAQ:FB). Despite this competitive environment, analysts expect Google to grow sales by 22% and earnings by 16% this quarter, while the rest of the industry is headed towards 11% earnings growth.
GOOG is a market mover in the technology sector, and it’s easy to see why. Out of the 88 companies that comprise the Internet Information Providers industry, Google is the largest in terms of market cap ($184 billion). The company also is also eighth in terms of Return on Equity (19.6%), and it is at the top in terms of its year-over-year Earnings Growth and its Price/Earnings to Growth ratio. Out of its industry, Google is in the top third in terms of sales growth and long-term growth rate.
The end of May brought big news for the tech world: Google finally cleared its last hurdle and closed its $12.5 billion acquisition of Motorola Mobility. This buyout has been in the works since mid-August and represents the largest wireless-equipment deal in over 10 years. Motorola Mobility — best known for manufacturing Android-based smartphones like the popular Droid and the Defy — was spun off from Motorola Solutions (NYSE:MSI) in January of last year. The company also owns about 17,000 patents, which should be great for Google’s defense against lawsuits from competitors like Apple and Microsoft.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This stock has improved significantly over the past 12 months; this time last year, GOOG was a D-rated sell.
What’s happened here is that in addition to having more investors jump on board with this stock (driving up buying pressure), Google has managed to firm up its fundamentals over the past few earnings announcements. Currently, Google receives top marks for earnings growth and it does well in terms of sales growth, cash flow and return on equity. The only real areas of improvement are operating margin growth and its track record of beating analyst earnings estimates. GOOG receives a B for its Quantitative Grade (which indicates the current level of buying pressure) and a B for its Fundamental Grade.
As of this posting, June 18, I consider GOOG a B-rated buy. The company is doing well in terms of most of its fundamentals, and it is headed towards another strong earnings announcement in mid-July.
Recommendation: B-Rated Buy
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