In the Spring 2010 issue of Graham and Doddsville, an investment newsletter from the students of Columbia Business School, value investor Glenn Greenberg argues that Google is cheap. His reasoning: “It is generating about $30/share of free cash flow this year and $34 next year. At the end of 2010 it will be sitting on $100/share of cash, as long as they don’t spend it all on high-priced acquisitions. Thus, at $540, you are paying $440 for $34 of free cash flow in 2011, an 8% yield. That seems really cheap.”
As of today, Google is trading below $500 a share.
Brave Warrior Capital, Greenberg’s investment firm, shows a new holding of 134,361 shares in its most recent 13F. Blue Ridge Capital, run by the highly regarded John Griffin, also initiated a material position in Q1, 2010.
Buffett has said that a durable competitive advantage is the most important thing to look for in an investment. The Curse of The Mogul, co-authored by Bruce Greenwald of the Columbia Business School, an expert on value investing and competitive strategy, states that, “Google is the rare company that seems to have strong elements of all three sources of competitive advantage identified – economies of scale, customer captivity, and cost.”
If you’re interested, here are a few places to start if you wish to research google further.
– Googled: The End of the World As We Know It by Ken Auletta
– Google Technology (a sample chapter from Stephen Arnold’s The Google Legacy)
Full Disclosure: The author owns shares of Google.