The Savvy Stock Investor: Google - Anatomy of a Stock - Part One

Using part of my meager stock budget, I bought two (yes, TWO) shares of Google on December 16, 2008. Price - $334 per share ( including purchase and eventual selling fees.)

On Jan 20th, 2009, the stock fell to its lowest since my purchase, $283 (-15%.)

And Monday, February 9th, 2009, about 2 months since I purchased it, Google hit $379 (+13%.)  Tuesday, it fell to 358 (+ 7%)  in a very sad bear market. What’s the point here?

The point here is that William O’Neil - founder of Investor’s Business Daily (IBD) - advises selling any stock whose value falls to 8.5%  below the purchase price. That means I should have sold at my selling point of $305 (- 8.5%.)

Great advice in a normal market.

But, ok, we all know that today’s market is far from normal. Dramatic daily market fluctuations are the norm, and I could needlessly  increase my losses  following this advice.

So I asked myself, “Self, what is this telling me?”

The answer came screaming back:

It ain’t black and white, Sherlock!!“

I)  I need to know my stocks.

Here’s at least some of what I need to know about Google.

1)  It’s sound technically.

Let’s analyze what the above data means.

A)  Earnings per Share (EPS) - by definition, for growth companies, it should have gone up in each of the last 5 years.  Check.

B) Operating Cash Flow per Share - should be increasing for the last 5 years. Check.

C)  Sales per Share - should be increasing for the last 5 years. Check.

D) P/E - should be dropping.  Check.

E)  P/S - should be dropping.  Check.

F) Return on Equity (ROE) - Desire ROEs of at least 20% maintained or improved over the yrs.  If you’re bargain hunting, you might accept a low or neg. ROE from time to time.  A steady ROE indicates a continuing return of substantial profits to investors.  Almost check.

So far, Google is looking good.  In part Two of this article, we’ll discuss other important parameters, such as volume, institutional and insider ownership, and the beat on the street.

Stay tuned.

Any thoughts out there on this stock?  Any one own some shares right now, or thinking of buying some?

photo credit: PicApp

Related Posts

• May 3, 2009 -- Alternative Energy Stocks: Their Time Has Come (2)
• April 17, 2009 -- Stock Market Investing Tips 101: Creating a POA Revisited (3)
• March 14, 2009 -- Ford CEO Takes Compensation Cut. But are the Vehicles Better? (3)
• January 25, 2009 -- Free Investor’s Business Daily (IBD) Offers (1)
• January 11, 2009 -- Smoke and Mirrors: Stock Dividends Financed by Loans (1)

• Using History to Understand the Stock Market and my Investing Plan Since I'm less than three years removed from college, this is the first bear market that has affected my finances. I previously wrote that the...
• The secret life of stock I remember visiting Wall Street in my early 20s and taking a picture of the charging bull. I didn't really get it, but I knew...
• Forecasting Stock Returns Using Macroeconomic Growth Factors Over the long term, corporate earnings tend to comprise about 10% of GDP.  This number fluctuates, of course, but the long-term trend is relatively consistent. ...