How Tall Is Mt. Google?

I began thinking of shorting Google at around $150 per share, then wrote after the market closed last Friday that I thought it could break $200, and that that should be the new place to start thinking of shorting. Now I’m wondering if it should be higher still.

Jim Cramer spoke about this subject on his October 22nd radio show. He said that although he doesn’t necessarily think Google should trade higher or that it must trade higher, he believes that it could. He said that if somebody held a gun to his head and he had to choose whether to sell it or buy it at its current price of about $170, he would buy.

Then he presented his reasoning. Wall Street expects GOOG to earn $3 next year. Cramer thinks it’ll earn $4. The question then becomes at what multiple should a leading internet company trade at? eBay trades at 80 times earnings. Yahoo! trades at 100 times earnings. Splitting the difference gives us 90. Run 4 times 90 and you get a target price of $360. That’s a 112% rise from here.

Is that possible? Cramer’s thesis is that people will pay almost anything for growth. Google is actually growing faster than either Yahoo! or eBay at the moment, so his target P/E of 80 might be on the conservative side.

The best thing to do now is watch. I haven’t shorted yet and am certainly not planning to buy. If it shoots past $200 and keeps climbing, let it climb. If people are eyeing the two most expensive stocks on the market as Google’s peers, it could be a long time before we see a correction. Let’s watch and wonder.

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