Google Stock Is on a Roll. Is It Still Worth Buying?

"Buy low, sell high." So goes the old adage for how to make money in the stock market. But what if there were another way? What if we could "buy high, and buy higher"?

I know that sounds ridiculous, but this past week, Fool user aryan89 posted a brilliant message on the Fool's premium boards. In it, he said:

History tells us that rather than trying to time the market and buy low, sell high, it is better to stick to your investing philosophies. If the reasons you invested into a company are still intact, rather than asking "Should I sell and take profits?" the correct question would be to ask, "Should I buy more?"

With this in mind, as I look for five potential stocks to invest my real money in during August, I'm looking for companies and stocks that are firing on all cylinders, and unabashedly buying in even though a stock has had strong price appreciation.

Today, I'm investigating Google , a stalwart that is beating the S&P 500 by 20 percentage points over the past year.

GOOG Total Return Price Chart
GOOG Total Return Price Chart

GOOG Total Return Price data by YCharts

Why such a good year?
To understand why Google is having such a good year, it's important to understand the challenges the company is facing, and why they worry investors.

The biggest of those challenges is a shift toward mobile computing. Though Google has its hand in many different businesses, advertising still makes up almost all of the company's revenue. And what people are seeing is that Google gets paid less for each advertising click on a smartphone or tablet than it would on a desktop.

That's an understandable concern for investors, but it's one the company is slowly dealing with. For starters, both Google and Chinese search giant Baidu have reported that mobile searches are occurring largely in addition to already-established desktop searches. As fellow Fool Joe Tenebruso pointed out: "This is a key insight because many investors mistakenly believe that mobile search is cannibalizing the much more profitable desktop search business of these two Internet giants. However, both Baidu and Google said that this is not the case."

The other part of the equation is that while the average cost per click has gone down over the past year -- though it is now stabilizing -- the total number of clicks has grown substantially. For instance, in the most recently reported quarter, the average cost per click was down 6%, but the total number of paid clicks was up 23%. An increase in volume like that is more than enough to offset lower price points, and investors are starting to catch on.

Why Google is still worth owning
Despite the recent price appreciation, I think Google has a lot going for it. The company has a milewide moat surrounding its core search business, and there are lots of other products the company is working on to make sure it's relevant in the future.

CEO Larry Page, in the most recent conference call, said the company will be investing capital to exploit the trend of users who are accessing the Internet through multiple screens. Obviously, the core search engine is the centerpiece, but Google has lots of other platforms to develop.

Android, for instance, is approaching 1 billion users worldwide. YouTube is now a profitable division of Google, and it's the third most popular website in the world. And the company's Chrome Web browser, according to Softpedia, now has a commanding 41% market share, far ahead of Microsoft's Internet Explorer and Apple's Safari.

Source: Softpedia.

At today's prices, Google shares trade hands for about 22 times earnings and about 25 times free cash flow. That's not exactly cheap, but then again, the strength of Google's business is pretty well known. I don't expect it to ever trade hands for too cheap.

Indeed, out of all the big players in technology, I think Google -- along with -- has the most sustainable competitive advantages to keep the company relevant for decades to come. If you'd like to see how the future of technology will play out, and who we think will win, check out "Who Will Win the War Between the 5 Biggest Tech Stocks?" The free report details the knock-down, drag-out battle being waged among the five kings of tech. Click here to keep reading.

The article Google Stock Is on a Roll. Is It Still Worth Buying? originally appeared on

Fool contributor Brian Stoffel owns shares of Apple, Google,, and Baidu. The Motley Fool recommends, Apple, Baidu, and Google and owns shares of, Apple, Baidu, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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