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The Case to Buy Google in 10 Charts

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Google (NASDAQ: GOOG) hit a record $800 on Tuesday. Yet despite the rally, shares of the search engine giant are still worth buying thanks to the company’s burgeoning digital empire and reasonable valuation.

Great core business

Google continues to dominate the search business. According to a recent report from comScore, Google now accounts for 67% of online queries in the United States. Microsoft’s (NASDAQ: MSFT) Bing has been gaining market share with 16.5% of searches, but this come mostly by pushing out Yahoo (NASDAQ: YHOO) and other smaller players. The industry appears to be moving towards a two-player duopoly.

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While Google's search engine is a cash flow machine, the company's growth rate has been in steady decline.

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This left the Street wondering what the company's next growth driver would be.

The Androids are coming!

Google answered this concern with its Android operating system. With over 500 million devices activated, Android represents a huge opportunity for Google to exploit for additional advertising and application revenue.

The company's strategy to release the platform to hardware manufacturers for free proved to be wildly successful. Five years after its launch, Android is now jockeying with Apple's (NASDAQ: AAPL) iOS for top spot in the U.S. smartphone market.

<img src="/media/images/user_14324/goog1_large.png" />

Android has also been remarkably successful internationally. In China, the world's largest smartphone market, Android powers 90% of all devices sold. 

<img src="/media/images/user_14324/goog8_large.png" />

The green Android monster is gobbling market share and keeping Apple shareholders up at night.  Apple has struggled to compete against Android in China. The iPhone is significantly more expensive and the company has had difficulty securing distribution deals. This market share slide could be reversed if Apple can secure an agreement with China's largest carrierChina Mobile. 

Suite of new products

Google has also been successful at a host of other ventures.

Tablets: The company released its Nexus 7 tablet late last year and the launch has been better than expected. Based on estimates from Google's component suppliers, Nexus sales are exceeding one million units per month.

Cloud Computing: Google is building massive data centers where businesses and consumers can store information and run applications. With most applications moving to the cloud, the PC may become little more than a screen with Internet access. 

Social Networking: Google+ has emerged as the internet's most underrated success story (yes, I will go on record saying that) with the site cracking 400 million members last year. According to Trendstream, 25% of Google+ members were active in the past month, second only to Facebook.

<img src="/media/images/user_14324/goog5_large.png" />

Double-digit growth

These ventures are sexy and all, but what kind of returns has the company delivered for investors?

Google has posted 25% annual top-line growth over the past four years.

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But not all of this revenue growth has translated to the bottom-line. Google has been routinely criticized for failing to control costs.

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Most of this expense is investment in research and development. Given Google’s innovation track record, I’ll give the company a pass.

In summary, Google's core search business, Android OS, and new ventures are projected to grow earnings per share at a 15% clip over the next five years.

<img src="/media/images/user_14324/goog4_large.png" />

Reasonable valuation

All lot of investors get squeamish over the Google’s $800 price tag. With the stock trading at 14 times forward earnings, Google looks expensive compared to other large-cap technology stocks like Apple or Microsoft.

<img src="/media/images/user_14324/goog9_large.png" />

But when you account for the company's growth and value the stock on a PEG basis, Google's valuation is well in line with peers.

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Foolish bottom line

Google has several catalysts that could drive the stock higher over the next year.  

Google StoreAccording to a recent report in the Wall Street Journal, Google may be developing plans to launch retail stores in the United States. This would serve as an effective distribution platform for the company's growing hardware product portfolio.

Dividend: Google is sitting on $48 billion in cash representing almost 20% of the company’s market capitalization. With mounting pressure from the Street to return some of that hoard to shareholders, the company could easily afford fund a big dividend payout or stock buyback. 

Global Recovery: Growth is accelerating in China and the United States and the debt crisis in Europe shows some signs of stabilizing. A global recovery would provide a nice tailwind for advertisement spending. 

RobertBaillieul has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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