This is a bit off topic for my usual posts, but I just saw a headline that read “Google loses status as premium-priced Web stock” and it made me mad.  So you're telling me that at $350 per share and a PE of 68, Google is no longer a “Premium-Priced” stock?  Give me a break!  I know people don't like to look at stock prices based on Market Cap and Earnings anymore, but those are the fundamentals.  Ignoring the fundamentals is the reason we had a dot-com bust.

So lets do some comparitive shopping.  Lets compare Google's stock to Microsoft:

• Google:
• Market Cap (at $345.70 per share): $102,170,000,000 ($102.17 Billion)
• Earnings for past 12 months: $1,483,000,000 ($1.483 Billion)
• Microsoft:
• Market Cap (at $26.39 per share): $272,700,000,000 ($272.7 Billion)
• Earnings for past 12 months: $12,471,000,000 ($12.471 Billion)

Keep in mind that Microsoft earnings are after all their one-time charges over the past year for antitrust lawsuit settlements.  That means next year they're going to make upwards of $16 billion in profit.  But for now, lets assume Microsoft is not even going to grow one bit.  Lets assume Microsoft will flat-line from this point forward at just raking in $12 billion per year.

By earnings alone:

• Microsoft is 8.4 Times the size of Google
• If Google grows at 50%, 40%, 30%, 25%, 20%, 20%, 20%, 20%, 20% for the next 9 years respectively, in 2015, Google will earn less money than Microsoft earned in the past 12 months!

Assuming 0 Growth for Microsoft and the above aggressive growth rate for Google, during the next 9 years:

• MS will earn $112 Billion
• Google will earn $59 Billion

Anytime you buy a stock, you're taking a gamble.  You're gambling that the stock you choose will outperform the “Built-In” expectation for the stock.  So in this case, when compared to Microsoft, here is what you're gambling will happen when you purchase Google:

You're saying Google is worth more than 1/3 that of Microsoft.  In fact, even if Google at some point in the future actually becomes 1/3 the size of Microsoft and its growth rate slows to that of Microsoft's, then it's stock price should be about $350.  So you're not only gambling that at some point it will be 1/3 the size of Microsoft, but you're gambling that even after it's 1/3 the size of Microsoft it will still be growing MUCH faster than Microsoft.  Otherwise you're wasting your money.  You'd be better off putting it in the bank and earn 0.8% interest and don't bother with the downside risk.

Now, I'm sure many people are thinking, “yeh but Google grew 100% year-over-year, blah blah blah”.  Come on people!  Those kinds of growth rates don't last.  Trust me, I wish they could! Axosoft grew sales 300% year-over-year between 2004 and 2005.  If we could continued our growth curve at this rate, we'd be double the size of Microsoft in just 11 years!

These stupid analysts who are telling you that Google is a “Buy” or a “Strong Buy” at $500 per share are the same idiots who were telling you Pets.com and Garden.com are worth $1 billion each just 5 years ago.  These guys should be shot.