Can Google (GOOG) Avoid the Apple (AAPL) Trap?

Any way you measure it, Google (NASDAQ: GOOG) is on a tear of late.

Shares of the search-engine giant have:

  • Increased 37% in the last year
  • Increased 19% in the last three months
  • Increased 15% year-to-date
  • Increased 6.5% in the last month

Thanks to its recent tear, Google shares have been establishing a new all-time on almost a weekly basis. The stock currently sits at $837, just a shade under last week’s new high of $838.60. Meanwhile, the company’s market cap has gone from $186 billion to $275 billion since last July.

The question now is: How much higher can Google go? Not much higher, according to most analysts.

According to Yahoo! Finance, the mean price target for Google shares among 30 analysts is $860. In other words, the average analyst thinks the stock only has another 3% left to run. The high target is $1,000. If that sounds eerily familiar, it should…

Six months ago, Apple (NASDAQ: AAPL) was also at an all-time high, trading above $700 for the first time in its history after an incredible 70% rise in a year. At the time, some analysts thought nothing could slow the Apple train. At least one of them predicted that the stock would shoot up to $1,000. Others said it could become the first company to earn a trillion-dollar valuation.

You know what’s happened since. Shares of the world’s richest company plummeted 40% in just over five months, dipping to a low of $420. It’s up only slightly since, closing at $437 today.

Does that mean Google is in danger of going through an Apple-like drop-off? Not necessarily. If you’re someone who believes in PE ratios, Google doesn’t appear in mortal danger, with shares trading at just 15.6 times forward earnings.

But at some point, when a stock as large as Google or Apple acts like a growth stock for an extended period of time, sticker shock invariably sets in for investors. There’s a reason there haven’t been many $1,000 stocks. No matter how great the company, once a share price reaches a certain level, investors begin to shy away – especially if it’s a tech stock.

We’ve seen it before with Google the first time it hit $700 back in 2007. We saw it with Apple late last year.

Are we about to see it again with Google? Stay tuned.

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