Google stock shortcomings

Currently, Google is heralded as a great tech company with the power to revolutionize many things. However, their stock is not necessarily a good option right now.

One of the important metrics in determining the strength of a business is the Return on Equity percentage. This is simply the amount of earnings per year as a percentage of the total amount of value in the company (anything of value minus all debts). Higher percentages equate to a more profitable business and capable management.

Google has an ROE of merely 16%, while Microsoft has an incredible 36%. This shows that MSFT’s management is far superior, and that they have a business that makes a lot more money for less . Generally, companies with low ROEs (less than 20%) are mediocre and many will phase out or lose money eventually.

Now, there’s a reason that management seems to perform badly at Google, and that’s because they have no confidence and no commitment to their company. Plus, Google Co-founders Larry Page and Sergey Brin who sit on the company’s board of directors do not hold any Google stock. Neither does the Google CEO Eric Schmidt. [Source: Yahoo! Finance]. When a management does not hold any stock in their company, they have no reason to make the company better because their money is not at stake. With Google, only 0.5% of their stock is held by insiders at the company, so no employees of Google really have a reason to make Google better.

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