Google and the P/E ratio in general

Someone on BW forums posted that the Google P/E was too high to justify the stock's price.

What a load of horsecrap. (Is this expressing my opinion honest enough?)

First off, the P/E ratio is not a very useful metric. It lags. Terribly. An argument could be made for using a FORWARD P/E, perhaps, but certainly not the trailing P/E. But even so, it's not that useful

Why would I say this? Well, look, the efficient market theory would state that if you pull up a chart, all that is publicly known about the company is reflected in its stock price. Thus, if a company, let's say google, which at the very last tick traded at 219.4 is worth 219.4. End of story. Humans have already determined that's what it's worth. Period. End of discussion. It doesn't matter what the P/E is!

Remember, the markets are all about supply and demand, and a stock's price is determined by two humans, or at least two humans who wrote code to agree on a trade. So, when you consider supply and demand, there's much, much more that comes into play in determining a stock's future price! This is where EXPECTATIONS come into play. And that's what analysts try to do, although few are actually skilled at it...

Now, we DO have to make the assumption that people will continue to trade non-physical things like shares of company stock with currency, despite the fact that it's not alot different than humans saying gold or currency has value. That precedent's been set already...

One needs to consider overall market conditions, the company's health and track record (and more - product pipeline, etc). I also think that looking at items such as return on equity, and debt-to-equity ratio are much more useful. Also, look at the current ratio...because, after all, you're looking for some kind of "catalyst" for the stock price to move, right? Well, if a company is about to have a lousy quarter and MISS their EXPECTATIONS, then you'd like to look for some kind of a signal...and upcoming due payments / debts is certainly a nice item to add to your arsenal. Of course, you might be able to just pull up a chart and a poor current ratio is likely to already be reflected in share prices...

There's so much more, and sometimes technical analysis makes it easier than sifting through the info...but I have to stop writing on this...I could go all day...

It just makes me mad when people use P/E as the sole indicator. Seriously, what P/E did Qualcomm trade at in 1999? Yeah, ok, that was internet bubble burst time...point is, it didn't matter. And P/E still matters very little. Remember, I'm a growth guy.