Is Google really worth it?
The new stock is soaring. "You can't value it" like other shares, says an analyst.
By Adam Lashinsky

(FORTUNE Magazine) – There's no denying a certain 1999-ness to Google's first few months as a public company. Its stock has more than doubled since it issued shares at $85 each on Aug. 18. And Wall Street chatter about its prospects is sounding awfully familiar, especially since Google released earnings for the first time on Oct. 21. "Until you fully define the end markets Google is pursuing, you can't value it," says David Garrity, an analyst at research boutique Caris & Co. Translation: Buy! Buy! Buy!

You'd think people would have longer memories, right? Yet there is a crucial difference between the frenzy of the Internet bubble and the frenzy surrounding Google: Google is a money machine, generating profit margins before taxes and stock-option expenses of roughly 35%. Of the big Internet companies, only eBay puts up numbers like that.

Still, Google's market cap is enormous relative to profits (see chart). And at 22.5 million shares, the float--the percentage of outstanding shares that are publicly traded--is thin. Expiring lockup agreements will free insiders and others to sell some 266 million additional shares in the next four months. If they sell even a fraction of their holdings, it could push down the stock.

But look at Google's valuation relative to its projected earnings--which is how Wall Street does it--and the prices seem a little less crazed. According to data crunched by IBES that takes into account Wall Street's average forecasts, Google trades for 56 times projected 2005 profits, vs. a forward P/E of 62 for eBay and 74 for Yahoo.

Rational or rationalization? Just remember, when you buy at a P/E like 56, you're gambling, not investing. -- Adam Lashinsky and Fred Vogelstein