Can you rationalise Google's stock price?

[sydneyking]

I'm in uni right now and have a medium sized share portfolio that are traded on the Australian Stock Exchange. After realising how small our market really is I started to look at other ways of investing and to my pleasant surprise I found I was able to trade on the massive American market.

The first stock I researched was Google's. Their current share price is around $470. To me that is shocking considering that:

(a) They have never paid a cash dividend

(b) They don't intend to pay one for a long long time!!

My question to you finance gurus or amateurs is this: What am I buying when I purchase 1 $470 share in Google?

To me this is insane.

[aahhsin]

there is nothing insane about that.

they probably needed the investment capital when they went public to purchase youtube and such

the high price is to retain control

nothing in the rule book says you have to pay dividends to have a high stock price

have you counted how many outstanding shares there are?

[sydneyking]

I'm not saying Google has done anything wrong. My question still stands:

What am I buying when I purchase 1 $470 share in Google?

[shadow]

Originally Posted by sydneyking

I'm not saying Google has done anything wrong. My question still stands:

What am I buying when I purchase 1 $470 share in Google?

goodwill. Google is all about brand name. You're buying nothing, and the price is inflated but compare it to yahoo.
P/E ratio 61.38 for yahoo vs 47.70 for google.
More importantly EPS for google is way higher than yahoo once you account for volume of shares.

I don't think either company pays dividends though so you're really buying to make a profit off it and no other reason. That's my armchair take on it. I'm not expert.

[Semiprocappa]

Originally Posted by sydneyking

I'm in uni right now and have a medium sized share portfolio that are traded on the Australian Stock Exchange. After realising how small our market really is I started to look at other ways of investing and to my pleasant surprise I found I was able to trade on the massive American market.

The first stock I researched was Google's. Their current share price is around $470. To me that is shocking considering that:

(a) They have never paid a cash dividend

(b) They don't intend to pay one for a long long time!!

My question to you finance gurus or amateurs is this: What am I buying when I purchase 1 $470 share in Google?

To me this is insane.

Google listed only a few years ago at about 100 - 150 a share. You're looking at about a 30% return per annum on the freaking share price!
And they are still in a fairly rapid growth mode. You'll get your 10% return, just not in dividends

[edit]
Just because a company pays a dividend doesn't mean they're a solid investment. It really only means that they have extra cash lying around and nothing to do with it.

Oh, and to answer your question, you get exactly the same thing buying a $470 share in google as you do buying a $30 share in the Commonwealth Bank, It's just that the bank has very little to do with it's profits except divide them between it's investors while Google is busy spending theirs on becoming the biggest IT company in the world.