Are Google Shares a Buy Post-Earnings?

With shares of Google now trading around $695, is (NASDAQ:GOOG) a Buy, a Wait and See, or a Stay Away? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Google was slated to release its earnings after the bell on Thursday, October 18. But the company and Wall Street were both got an early afternoon surprise when an incomplete draft of their third quarter 2012 results – still available as of writing – was posted to the Securities and Exchange Commission website. Human error at Google’s financial publisher, R.R. Donnelly & Sons Company (NASDAQ:RRD), is apparently to blame.

Q3 earnings came in at $9.03 per share, $1.62 below analyst estimates. Shares dropped as much as 9 percent on the news before the stock was halted for most of the remaining trading day. The weaker-than-expected quarter came shortly after shares hit an all-time high, and Google passed Microsoft (NASDAQ:MSFT) in market capitalization – an achievement that had evaporated by the closing bell.

Perhaps overshadowed by the premature earnings, Google also announced its newest Chromebook on October 18. The machine is made by Samsung, and clocks in at $249. Basic specs: 2.5 pounds, 0.8-inches thick, 6+ hours of battery life, and 100 GB storage on Google Drive. At this price point, the new Chromebook is a viable alternative to holiday shoppers considering the glut of tablets marching their way into the holiday season.

Finally, for fans or curious parties, the company gave us a look inside a few of their data centers, lifting the lid on some of the behind-the-scenes magic.

H = High Quality Pipeline

Google’s product pipeline is both well-known and a little wonky. The company is the undisputed king of search – although Yahoo (NASDAQ:YHOO) search and Bing are by no means dead – and it has a solid line up of software offerings including Mail, Maps and Drive, and the popular Chrome. YouTube alone is one of the most popular websites on the planet. These software offerings aren’t immune to usurpation: Nokia (NYSE:NOK) and Apple (NASDAQ:AAPL) are both pushing maps, Microsoft Office is promising to enter the mobile-cloud arena with a fresh attitude, and video platforms – like most tech – must constantly innovate in order to stay relevant.

Mobile will continue to be the vector for growth for most companies. Google’s Android remains massively popular as the counter-balance to the Apple platform. Most, if not every, company will struggle to grok mobile moving ahead. But Google has demonstrated that it understands what it takes to change with the market in the past, and evidence suggests that it will remain a dynamic company.

Just one year ago, Google’s mobile advertisement run rate was $2.5 billion. On the most recent earnings call, CEO Larry Page put the new run rate for mobile business at $8 billion per year.

A = A-Level Management Runs the Company

Over at Glassdoor.com, CEO Larry Page has a 94 percent approval rating. The self-made man and Google co-founder Sergey Brin have received a number of accolades for their performance as technology and business leaders.

In 2002, Page and Brin were named to the MIT Technology Review TR100 as two of the top innovators under the age of 35 in the world. In 2003, they received an honorary MBAs from IE Business School. In 2004, they received the Marconi Foundation prize.

Page has shown reliable commitment to his company’s vision. On the most recent earnings call, Page said, “Users want one consistent, beautiful and simple Google experience. Technology should do all the hard work, liberating users to get on with the important things that matter with their lives.”

Google continues to attract some of the best talent in the world by fostering a smart, innovative work culture spearheaded by its founders.

T = Technicals on the Stock Chart are Strong/Average

As of October 19, 2012, Google’s stock price is 7.49 percent below its 20-day simple moving average; 2.11 percent below its 50-day simple moving average; and 9.92 percent above its 200-day simple moving average.

Since the beginning of 2012, the stock price has been in an upward trend, and is up 4.45 percent for the year-to-date through October 18, and up 19.68 percent year over year.

E = Excellent Relative Performance to Peers is Questionable

Many investors favor Return on Equity as a key metric to diagnose how well a company is performing. Google’s operational performance is low compared with peer companies. Google has an ROE of 19.04 percent, while Microsoft has an ROE of 27.51 percent, and Apple has an ROE of 44.32 percent.

Operating margins are also critical for stock evaluation. Google sits between competitors, with a margin of 30.48 percent, compared to 29.52 percent for Microsoft and 35.62 percent of Apple.

Conclusion

Google just clocked in as the fourth most valuable brand in the world. The company has a positive vibe and a lot of energy behind it, with a following almost as notorious as the Cult of Mac. It’s changed the way the world interfaces with the Internet. With a mean analyst target of $816.42, word on the street seems to be that the company has room to grow.

However, with Apple and Microsoft prowling the jungle, and recent earnings in tow, Google is going to have to work hard for every dollar it adds to share value. The recent build up that lead a 52-week high, a moment of hang time over Microsoft, and subsequent drop, demonstrate that speculation is still built into the price. Because of this, and based on its metrics, Google is a Wait and See.

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