Google Inc (GOOG): Great Company, Red Flag Stock?

Apple Inc. (NASDAQ:AAPL)’s calendar third-quarter numbers released on Oct. 25, 2012 revealed a huge year-over-year 10 DSO spike, followed by two more days in the fourth quarter. The stock had fallen to $605 by the Oct. 25 release, but still had another 28% to go to yesterday’s $434 close. So far, however, the LTM changes are immaterial, so we won’t know where the trend is for another quarter or two. Plus, Apple is subject to margin compression and product cycles, which are likely far more important to the stock drop to date. And it’s cheap, cheap, cheap — six times EV to LTM EBITDA, and 12 times market cap to LTM levered free cash flow, though, of course, that includes two better and two worse quarters. It’s getting close to value land. Who woulda thunk it?

And then there’s Google Inc (NASDAQ:GOOG).

Googling Google
While Google’s LTM DSOs have risen immaterially, there are warning jumps for seven of the last eight quarters year over year. The trend will start to show up in LTM numbers unless there’s a significant reversal of the last three quarters’ direction. This is a sign for investors to be on guard for potential downside from today’s price. Google Inc (NASDAQ:GOOG) sells for 13 times EV to LTM EBITDA, and 24 times market cap to LTM levered free cash flow, which is pretty high. For a growth investor, it depends on forecasting the growth; but you don’t get paid as with Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL)’s dividends and buybacks. Google Inc (NASDAQ:GOOG) is worth only whatever anyone says it is. Curmudgeonly Investors like me trust management to invest capital for higher return, but we like the bird in hand of getting paid along the way.

Shareholders are well advised to watch the stock. The red flag is hardly waving madly from the highest point at the Mountain View, California Googleplex, but when DSOs are up year over year for seven of the last eight quarters, the customers are taking longer to pay. Never a good thing.

The article Google: Great Company, Red Flag Stock? originally appeared on Fool.com is written by Tom Jacobs .

Tom Jacobs is lead advisor for Motley Fool Special Ops, a premium service offering a long-short investment portfolio serving up special situations and opportunistic values, spiced with a dash of earnings quality shorts. He is the co-author with Motley Fool’s John Del Vecchio of “What’s Behind the Numbers? How to Expose Financial Chicanery and Avoid Huge Losses in Your Portfolio.” Follow him on Twitter @TomJacobsInvest and read — if you dare — his other Motley Fool columns. He owns no shares of any company mentioned.The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, Google, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.