Yahoo! Inc. (YHOO): This Internet Behemoth Is Set to Regain Its Past Glory

Coming to the P/E ratio, Yahoo! Inc. (NASDAQ:YHOO) is trading cheap at 18 times trailing twelve months earnings, compared to its peers at 25x. The forward P/E estimated is at 17.5x, lower than the industry’s 22x. This means that Yahoo! does not have to worry about some premium it gathers by acquiring start-ups. It can even do that with a small amount of leverage, considering the fact that Yahoo! is virtually debt free. Compared to Google Inc (NASDAQ:GOOG) (64%) and Microsoft Corporation (NASDAQ:MSFT) , the gross margin of Yahoo! is at a staggering 80%, even more than the industry (70%).

Microsoft has been a strong performer this year, delivering a return of more than 30%. The gross margin of Microsoft Corporation (NASDAQ:MSFT) is much lower than Yahoo! Inc. (NASDAQ:YHOO), however the stock continues to attract value investors with its low PEG and P/E ratio. The cash flow component is also more than Yahoo!. After the not-so-successful response of the Surface tablet, it remains to be seen how Microsoft plays its cards with such a strong balance sheet. Notwithstanding competition, Microsoft Corporation (NASDAQ:MSFT) still carries a lot of value.

Google appears to be trading at a premium with a P/E of 26 compared to Yahoo!. At $873, it holds a downside risk and I would not prefer to hold the stock at current levels. It has generated a handsome return of 46% over the past one year. The growth rate seems sustainable, but whether the stock is trading at a fair price is a concern, especially when Google Inc (NASDAQ:GOOG) has not performed well in any of its profitability metrics.

To sum up, my take

With the ushering in of a fresh management and a focus on the right things, Yahoo! Inc. (NASDAQ:YHOO) should get better from here. Yahoo! is now breathing easy and the best part — it has recognized its hidden potential. The brand equity is still as strong as it has always been. The stock has already started bouncing back and I believe in the next few quarters, Yahoo! Inc. (NASDAQ:YHOO) will stand where it truly deserves to be. And I will not be surprised if it poses a threat to other internet giants.

Tanya Kanodia has no position in any stocks mentioned. The Motley Fool recommends Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Google and Microsoft Corporation (NASDAQ:MSFT).

The article This Internet Behemoth Is Set to Regain Its Past Glory originally appeared on Fool.com.

Tanya is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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