An Analysis of Google's Stock

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The recent blip on Google's (GOOG) amazing stock trend shouldn't worry you. Real investors consider the long-term potential of the company. Here are the typical responses haters espouse, and the flawed reasoning behind them:

Myth: "Google is way overpriced."

Truth: To gauge a company's value, consider potential (potential, potential, potential!). Google is a textbook company run by the brightest minds in the world. In the end, it's not about your strategy, it's about your people. Comprehensive studies have proven this point -- including the latest one by Jim Collins's six-year study on great companies. I challenge you to find one study that disputes this reasoning. The only clear way to grow is through great people, whose values fit the company to a T. Google's potential is astronomical.

Myth: "Google only does advertising. This will not sustain."

Truth: Companies thrive on simple revenue models. The greatest companies in the world have them (e.g. Wells Fargo, Gillette, Altria, and Kroger). The ones who haven't have built complex systems with no clear solution to grow. Challenge: find a great company with without a simple revenue model. You can't.

Myth: "Google is just a search engine. Its employees aren't doing anything else."

Truth: Check out, and tell me if Google is just a search engine. Truth is, Google is not bogged down by bureaucracy. People succeed when given freedom. Douglas McGregor asserted this in his heralded study: The Human Side of Enterprise. Google grants its employees "20% time" to do whatever they wish. This encourages innovation. That's why you've seen Froogle, Gmail, Google Maps, Google Video, Google Local. All originated from "20% time." Google has built an innovation factory. This, in turn, has and will increase profits.

Myth: "Google needs to build different businesses like Yahoo and Microsoft."

Truth: Google is guided by a clear vision. They resist opportunities that don't fit them. Instead, they know their strengths--repeatedly augmenting it. Wal-mart did it. So did Wells Fargo, and Disney, and 3M. By sticking to what they know and where they can use their strengths, this practice will ensure Google more opportunities in the future. You can't find a better company out there than Google. Long-term investors know why this company is so valuable.

You heard it here first: Google will reach $3000.

Short term traders jump from opportunity to opportunity, never understanding why a company's potential is vital to long-term success. That's probably why most of them live with their mommas. [Author's note: I posted this on a bulletin board recently around Silicon Valley, received a myriad of responses, and am glad to share it with you on our blog.]

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Posted on February 27

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