There are interesting comments / discussions generated at Berkshire Hathaway Shareholders' Board. If you are interesting in the discussion about Google, please visit:
Learning is the key to success,
Dah Hui Lau (David)
Knowledge grows through sharing! To be the best, learn from the best! May all your dreams come true! Collections of Value Investing articles, interviews and videos, especially on Warren Buffett and Charlie Munger and articles from various disciplines to build "Latticework of Mental Models"
Monday, February 27, 2006
Saturday, February 25, 2006
Is Google Overvalued at $377? Feb 25, 2006
There is no doubt that Google is an interesting company. Google has superior technical staffs, Internet advertising is growing dramatically at the expense of television and newspaper advertising and Google has dominant market share in the search business.
So, what is so great about this company?
Net income:
It is growing its earning at a very, very high rate. Net income increased by over 200% from $399M (2004) to $1297M (TTM). Very impressive indeed.
Gross Margin (TTM): 57.2%
Net Margin (TTM): 24.7%
ROA (TTM): 21%
ROE (TTM): 23%
Without doubt, Google is a strong and admirable company. Bill Miller, one of the legendary investment managers, believed that Google is undervalued and Google should be valued above $200B, which are 2X current value. (Jan 20, 2006; money.CNN).
But, is it a good buy?
There are a couple of ways to value Google.
Google Valuation, Method 1:
Comparison between other Online / Internet companies:
Price/Sale Ratio
Google = 21X
Yahoo = 9.7X
IACI = 1.3X
P/E (TTM)
Google = 75X
Yahoo = 26X
IACI = 11.7X
Even by relative comparison, Google seems excessively priced; it has 2X higher valuation than Yahoo and more than 19X higher than IAC/InterActive Corp, based on price/sale ratio.
Google’s Valuation, Method 2:
Fundamental analysis on Income statement, Balance Sheet, Cash Flow Statement, etc.
Google:
Market Cap = $111B (Feb 24, 2006)
Enterprise Value (TTM)
= Market Cap + Total debt (interest paying) – Cash
= $111B + $0.55B - $7.6B
= $104B
Free Cash Flow (TTM)
= Net operating Cash Flow – Net Investing Cash Flow (excluding acquisitions)
= $2.17B - $0.65B
= $1.5B
Enterprise Value / Free Cash Flow
= $104B / $1.5B
= 69X
Earning yield (TTM)
= Operating Income / Enterprise Value
= $1.75B / $104B
= 1.7%
By simple fundamental analysis, Google seems to be excessively valued.
Google’s Valuation, Method 3:
Relative comparison to other similar sized companies.
One of the companies that I want to compare Google to is Berkshire Hathaway.
Market Cap:
Google = $111B
Berkshire = $133B
Price/Sale Ratio
Google = 21X
Berkshire = 1.8X
P/E (TTM)
Google = 75X
Berkshire = 20X
Price/Book (TTM)
Google = 12X
Berkshire = 1.5X
Sales / Revenue (TTM)
Google = $5.3B
Berkshire = $76B
Net income (TTM)
Google = $1.3B
Berkshire = $6.7B
Berkshire has sales / revenue of 14X bigger than Google;
Berkshire has net income of 5X bigger than Google;
Yet, Berkshire only has 20% higher market value than Google.
In conclusion:
By three methods of simple comparisons / analysis, Google seems to be overvalued. Therefore, it is not surprising that Google’s value plunged from $475 (Jan 11, 2006) to $377 (Feb 24, 2006) in a matter of 7 weeks, wiping Google value by $29B! Yep, that’s right, $29B loss in 7 weeks!!
Warren Buffett and Charlie Munger, two of the great investors of our time, sum it up the best.....
Charlie Munger said “Buying great businesses at advantageous prices is very tough." (May 8, 2001)
Warren Buffet said “The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.” Also, “It is more important to say "no" to an opportunity, than to say "yes".”
All the best,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com
To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html
Black & Decker (BDK) at $83; Feb 25, 2006
To read my comment on Black & Decker in Value Investing Forum, please visit:
http://value-investing-forum.com/viewtopic.php?p=3387#3387
All the best,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com
http://value-investing-forum.com/viewtopic.php?p=3387#3387
All the best,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com
Friday, February 24, 2006
What is your expectation of long term BRK performance; Feb 16, 2006
An interesting question is what is the long-term expectation of Berkshire Hathaway return?
To read my brief view of BRK performance, visit:
All the best,
Dah Hui Lau (David)
Movie Gallery (MOVI); Feb 24, 2006
MOVI has shareholder's equity of $334M is and market cap $108M. Is it a bargain or not?
To see my comments on Movie Gallery (MOVI) on Value Investing Forum, please visit:
http://value-investing-forum.com/viewtopic.php?t=830
All the best,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com
To see my comments on Movie Gallery (MOVI) on Value Investing Forum, please visit:
http://value-investing-forum.com/viewtopic.php?t=830
All the best,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com
Whitney Tilson Interview by Bloomberg; Feb 23, 2006
Whitney Tilson appearance on Bloomberg, proclaiming why he loves big caps and why it is a good time to invest in companies like McDonalds, Wal Mart, Berkshire Hathaway, and Anheuser Busch.
http://www.tilsonfunds.com/TilsononBloomberg.wmv
All the best,
Dah Hui Lau (David)
Practice Makes Permanent; Feb 23, 2006
It is fairly easy for Jonathan, a 5-year-old kid taking his tennis lessons every weekend to improve than it is for Roger Federer. I think the reason lies in the transition of thought process associated with the game from System 2 to System 1, a concept well explained by Daniel Kahneman and Amos Tversky.
http://arpitranka.blogspot.com/2006/02/practice-makes-permanent.html
All the best,
Dah Hui Lau (David)
Thursday, February 23, 2006
The Price of Victory; Feb 22, 2006
BOB OLSTEIN IS a numbers kind of guy. He has built a great reputation by digging into corporate accounting. His own bottom line: He holds himself strictly accountable to his investors.
Barron's: Give us some investing principles to live by.
Bob Olstein: "If you want to succeed in this business, don't be afraid to be wrong some of the time. The only thing that counts out there is paying the right price. If you pay the wrong price for a good company, you may have a bad stock."
What keeps you up at night?
"The biggest fear that you have, that gives you cold sweats, is to ride a stock (like Pier 1 (PIR1), which I recently sold) from 14 to 9 and then sell it when it's at its low for the last four years and worry that the stock is going to come bouncing back."
All the best,
Dah Hui Lau (David)
Wednesday, February 22, 2006
2005 Chuong Investment Management Partner Letter
The partnership achieved a -3.6% return in 2005 compared to a 3.0% return by the S&P500 index. This marks the second occasion in which the partnership underperformed the S&P500 index. The Dow Jones Industrial Index and Nasdaq posted a -0.65% and 1.37% return in 2005 respectively. Both performances by the Dow and Nasdaq beat the partnership in 2005.
All the best,
Dah Hui Lau (David)
Tuesday, February 21, 2006
My 10 Stocks for 2006; Feb 2006
by James K. Glassman, Kiplinger’s Personal Finance, March 2006
Call it smarts or just plain good luck, but the performance of my annual list of stocks gets better and better. Most years since 1995 (I took a hiatus for three years), I've offered readers of The Washington Post and now Kiplinger's Personal Finance ten stock picks, culled from the choices of experts whose opinions I value. The list for 2005 was my personal best, returning 23%, including reinvested dividends, compared with just 5% for the benchmark Standard & Poor's 500-stock index. My 2004 list beat the S&P by 11 percentage points, my 2003 list by seven. It's time to test my good luck (or skill) once more.
All the best,
Dah Hui Lau (David)
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