GOOG Getting Extended On Analysts Love Affair

A look at the chart above shows the big run Google (GOOG) has had. The green shading on the RIS Indicator at the top shows that the stock has moved into overbought territory. This makes the stock vulnerable to a pullback.

One of the reasons that GOOG has been running so hard is that the analysts are finally waking up and realized that the stock should be more highly valued than it has been. This is one of the great growth stocks out there, and it deserves a premium multiple. This is one of the main reasons that the stock has remained my largest position, and I have resisted taking profits.

So it makes sense that as the stock finally started to breakout, the analysts who have been lukewarm on the stock would react by raising their price targets.

Here is a look at some of the price target upgrades we have seen just this week:

• $740 - Merrill Lynch
• $735 - Stifel Nicolaus
• $714 - Lehman Bros.
• $710 - Stanford Research
• $690 - RBC
• $670 - Banc of America

And Cramer jumped on the bandwagon last night and said he sees the stock going to $750. If GOOG earns $20 next year, then a $750 PT would imply a P/E of 37x. This sounds reasonable to me. I wouldn't be surprised to see the stock get a 40x multiple at some point. That would not be out of line for one of the best growth stocks out there.

And GOOG has a pretty good history of beating the earnings estimates. I just read an article about the next wave of growth coming from serving up ads on video. And I don't think any of these revenues are "in" the estimates.

So if we go out on a limb, and say that maybe GOOG earns more than $20, and at some point trades at 40x earnings, then it is not unfathomable that the stock could see an 8-handle at some point next year.

For all of its hype and attention, the stock is only up +35% this year. That's not bad, but there are many growth stocks out there that are up much more. So let the stock come in, that's just normal profit taking. But I certainly don't think the run for GOOG is over.

long GOOG