Investors expect Google to lead economic recovery

Investors expect Google to lead economic recovery

Google’s (NASDAQ: GOOG) share price spiked nearly $15 today as investors prepared for their Thursday earnings call.

Google, whose Earnings Per Share has hit or exceeded analyst targets 13 out of the last 16 quarters, saw share prices rise to $589.00/share in heavy trading. Despite a down quarter, in which Google has underperformed the market, investors remain bullish on Google’s consistent results.

If Google can hit these high targets, analysts say, the payoff could be an upswing across the market.

The company has been down approximately 7% in share price over the last quarter, compared to a 7% rise in the NASDAQ. However, share prices have rebounded to near what they were before the China fiasco. The growth in share price, much of which has happened in the last week, is largely precipitated on a projection that Google will see EPS growth again.

Most analyst estimates, however, say that Google will see negative revenue growth compared to last quarter. However, Kaufman Brothers Analyst Aaron Kessler said that “investors expect Google’s net revenue to be flat to up 1 percent sequentially in the first quarter. If they come in at 2 percent or more (sequential net revenue growth), the stock could go higher.”

A positive earnings result for Google, combined with other good results across the tech sector, could spur investors to increase investment in tech. This investment, which will spur growth across the market, will largely be precipitated on Google’s news. If Google fails to meet analyst expectations, we may see a cooling effect in this sector of the market.

As strong performance in the tech sector is often a leading indicator of economic growth, Google’s announcement could serve as a progress report for the ongoing economic recovery. Google is the 800 pound gorilla of the Tech Sector of the market. If Google can post strong earnings despite the China debacle, then analysts may declare the recession to be winding down.

Below is a graph of Google’s EPS estimates compared to their actual EPS.

Thanks to SFGate.com for the chart.

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