Google Bulls See More Upside Ahead, But Will It Come After A Pullback?

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Google Inc GOOG shares have come back to life in the last two months, rallying more than 15 percent since January 9 after nearly a year-long correction/consolidation phase. Can the stock continue to rally and provide a major tailwind for the broader market?

What The Bulls See

• A reasonable P/E multiple of around 18 versus revenue and earnings growth of 15-16 percent, compared to the S&P's P/E ratio of over 22.
• Big profit machine: Beautiful profit margins of over 20 percent and huge positive levered free cash flow of over $6 billion
• A nearly flawless balance sheet: Cash on hand of over $62 billion versus debt of only $8 billion, a debt-to-equity ratio of only 7.67 percent and a current ratio of over 4.8.

What The Bears See

• Some pricey valuation metrics: An enterprise value of only $328 billion versus a market capitalization of around $383 billion, a price-to-sales of over five and a price-to-book of over three.

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The Technical Take

Technicians note that Google shares may have completed a long-term "ABC" downside consolidation pattern with January's low down near $488. If that is the reality, then the most recent upside is likely the beginning of wave "5" higher on the weekly chart. If their measuring techniques are accurate, Google shares would then have a minimum upside target of $665 and an extended target of around $675.

First support for the stock –- where the aspiring longs will likely be entering –- is down at the intra-week low from last week at $528.25. If the broader market corrects lower at all, Google may come down with it.

Overall

At this point, technical strategists say that Google shares appear to be great "buy the dip" candidates and will remain so as long as the January lows $501.20 pivot (weekly) low from late January holds up. The fundamentals of the company don't seem to present any powerful negative evidence to counteract the stock's bullish technicals. Perhaps only the slightly expensive valuation, based on certain metrics, would give anyone any pause in owning Google.

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Posted In: Long IdeasTechnicalsTrading IdeasGoogleStocks to Watch
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