Google (symbol: goog) started seven years ago with a computer and a good idea, now it is a $120 billion company. But don't get too rosy with the stock yet. I don't think it would be a bad idea to short the stock

Google itself is a good company with good management but, the stock is overpriced. The market expects a lot from Google and frankly, I don't think that the company can deliver. Because Google has a dominant market share of the online search business it can't grow much faster than the industry. Google has a forward P/E of about 70, that means investors expect the company to more than double its profitability next year and while Google is growing fast it is not growing that fast. If the company does not adjust the P/E the market will. The stock is a bubble waiting to crash. In the short term Google may go far bayond its current price of $422.53 but, in the long term it will go far beneath this price.

The price of Google as I said is a bubble and right now the stock bears a lot of resemblence to the pre October 1929 market. People are buying only because other people are buying, the share price has become independent of the company and few investors are looking past the immediate future. These are all the warning signs of an impending crash. It is doubtful that a stock supported in large part by margin accounts and herd mentality can defy logic for much longer.


disclosure: the author owns no stock in Google but does use Google's advertising services