Welcome to the Stock of the Day.
Internet search giant Google (GOOG) just surpassed Exxon Mobil (XOM) to become the second most valuable company in the U.S. But given that Google missed last quarter’s earnings estimates, is bigger truly better?
Let’s find out.
Company Profile:
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 entered several other tech-based markets, including social networking and mobile phones.
In fact, Google’s Android operating system powered more than three-quarters of smartphones that were sold last quarter. Google’s main competitors are Apple (AAPL), Microsoft (MSFT), Yahoo! (YHOO) and Facebook (FB). Right now, all four stocks are buys right now.
Earnings Rundown
During the fourth quarter, Google saw higher ad revenues and a spike in aggregate paid clicks. This helped drive 17% annual sales and 17% earnings growth. Google reported adjusted earnings of $12.01 per share on $16.86 billion in revenue, missing the $12.26 consensus EPS estimate but topping the $16.75 billion sales view.
Future Outlook
This is shaping up to be a big year for Google stock, with Google Glass expected to hit store shelves and a smart contact lens that measures blood sugar levels in development. For fiscal 2014, Google is headed towards 18.2% earnings growth, above the 16.6% industry average. The company is expected to grow sales by 17.4% over FY 2013. Better yet, this robust sales and earnings growth is expected to last through the end of FY 2015.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Last summer, GOOG was caught up in some choppiness after the internet titan disappointed for second-quarter earnings.
However, Google was able to turn things around by its third-quarter earnings report so the stock has regained its momentum. With the latest fourth-quarter results now in Portfolio Grader, the stock is more secure than it has been in months.
Of the eight fundamental metrics I graded Google on, it receives Bs on six (sales growth, earnings growth and cash flow, among others). The only areas for improvement are operating margin growth (C) and earnings surprises (D). Meanwhile, GOOG receives a B for its Quantitative Grade, indicating strong buying pressure.
Bottom Line: As of this posting I consider Google stock a B-rated Buy.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!
