The Contrarian Blog

Gads of Google (GOOG)

by 10/17/2007 9:49 AM
Stocks quoted in this article:
Publication: "BusinessWeek"
Publication title: "Google: Rational Exuberance?"
Publication Date: 10/11/2007
Brief Summary:

This article takes a look at Google's (GOOG: sentiment, chart, options) performance as the shares continue to reach all-time highs. In fact, the author suggests that the problems with the record that GOOG set on October 10 is that it comes days before the company releases third-quarter earnings, which is set for October 18. The article posits that the stock could drop should it not top expectations of $3.75 per share by posting earnings of $4 per share or better.

Should this week's earnings come in lower than expected, the author hints that the stock is "unlikely to stay down for long," noting that the stock is trading at a multiple comparable to other stocks in its sector. One concern should be that the stock has dropped even after topping expectations, as happened back in January following a 67% increase. The major concern ahead of this week's earnings report is that the company could see ad revenue shrink, as the credit crunch may have limited some advertising budgets.

Contrarian Takeaway:

The article concludes with this quote, "even if Google shares pull back in the coming days, they may be setting new highs before long." Technical performance suggests that this comment could be spot-on, and sentiment suggests that the run higher could continue. Pessimism runs high in the options pits, as GOOG's Schaeffer's put/call open interest ratio (SOIR) of 1.17 is at its highest point of the past 52 weeks. This percentile ranking suggests that there is more than enough room for optimism to creep into the picture and push the stock higher.

The potential downfall for GOOG comes from the world of sentiment as well. According to Zacks, GOOG earns 17 "strong buys," 4 "buys," and 2 "holds." Any downgrades stemming from the firm's earnings result could try to push the stock lower. Will the support withstand potential downside pressure? It certainly appears so.

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