You've Got to Be Kidding!
Mercury News reports that a stock analyst from Piper Jafray predicts that Google's share price will top out at $600 a share. Ha! Google closed at $435 today, high enough certainly but who are we kidding here? Google has earnings of about $4.50 per share. Using a long-term discout rate of 5.7% (30 year treasuries) and assuming a long term economic growth rate for the US economy of 2% (not necessarily realistic), the discounted present value of the stream of income from Google's earnings at most could be values at 4.5/(5.7-2) which is about $108. This is the maximum amount Google should be valued at. The problem seems to be that when growth rates approach the discount rate, the projection of future value apporaches infinity. Don't get fooled! The tech bubble has not returned.
- posted by Base10 @ 5:59 PM