Google Chrome Will Take On Windows: Good News for Google Shares?

After two decades of Windows' dominance, a new operating system could enter the fray later this year. Google (GOOG) announced this week at the Computex Taipei electronic exhibition that its Linux-based Chrome OS will ship in the fourth quarter of this year.

Google first announced the Chrome OS, not to be confused with the Chrome browser, about a year ago. Compared to Windows, it's expected to be leaner, with less code. It promises to speed start-up times when you turn on your PC as well as when connecting to the Web.

The prospect of a new revenue stream should be good news for Google shares, which have been languishing this year. The stock, which currently trades below $500, is down about 20% in 2010. But with the prospects of a new Google operating system for computers, not to mention the success of its wireless Android operating system, some on Wall Street are now saying GOOG make a good value buy.

Three Straight Quarters of Rising Revenue Growth

It's pretty easy to see why. The stock trades at a forward price-earnings ratio of 15 and has an attractive price/earnings to growth (PEG) ratio of 0.94. Google is a cash machine, generating $2.35 billion in free cash flow in the first quarter. Besides that, the company has $26.5 billion in cash reserves and no debt.

In its first quarter, ended in March, Google boosted revenue 23% from a year earlier to $6.8 billion. It's worth pointing out that this was the third-straight quarter of rising revenue growth -- an indication, perhaps, that the advertising market is rebounding. If you take a long-term perspective, Google's annual revenue growth has averaged 102% -- doubled -- per year since 2001. At the same time, its operating margins have swelled to 37% from 34% a year ago, thanks, in part, to cost-cutting.

Of course, Google faces some challenges ahead. Among them: the long-term consequences of being absent from China, the world's largest market, and questions over its continued ability to compete with Apple (AAPL) and Research In Motion (RIMM), among others, in the wireless market.

Taking a Cue From Microsoft

But the success of Google Chrome and Android could hold Google in great stead going forward. Much the way Microsoft (MSFT) beat Apple by making its OS open to myriad hardware makers, Google could now gain market share with its open-source software. In wireless, Google's Android already boasts a 28% market share, surpassing, by some accounts, Apple's market share in the wireless business.

Google also recently announced its acquisition of Admob, a mobile ad platform that has been especially popular on the iPhone, for $750 million. AdMob became a unit of Google this week and should help the company become a giant in mobile advertising and mobile search.

All these positive developments don't mesh well with a falling stock price, and that's why some analysts now insist that Google makes a good long-term buy and that the stock could reach $550 this year.