A: It's hard to bet against Google. It made a fortune proving critics wrong, and maybe your husband will become one of them.  When Google went public in 2004 at $85 a share, the timing couldn't have looked worse. Yahoo (YHOO) was the dominant player on the Internet and the first stop for most Web surfers. Microsoft (MSFT) was interested in expanding its online presence and appeared capable of leveraging its skill at writing software into becoming an online powerhouse. Many thought Google would have a nice run, and eventually be folded into one of these companies.  Instead, Google become a powerhouse, building a near monopoly in online search. Even though there are arguably better search engines, Google has become so entrenched many Web surfers won't try an alternative. The company has also used its market share in online search to bundle online businesses and services, including video voyeur site YouTube and online ad firm DoubleClick.  After its debut on the Nasdaq, shares of Google soared, hitting a high of $747.24 a share in November 2007. Then, the stock fell back before finding a bottom in March around $400. It's been recovering since, leading many investors to wonder the same thing your husband is: Is this company getting ready to take another huge leg up, or has it seen its best days?  To help think this through, let's put the stock through our four tests:  Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading Google's trading history back to 2004, we see the company generated an average annual compound rate of return of 31.3%. That is a healthy return if you consider the S&P 500 has posted a roughly 5% annualized return over the same time period, says IFA.com.  But to beat the S&P 500, you accepted high risk — standard deviation — of 57.4 percentage points. That's 626% greater than S&P 500's risk during the period. So to get a 526% higher return you accepted 626% higher risk. Not a great deal, and if you're not prepared for sky-high risk, Google is not a stock for you. But for investors with their seat belts on, let's go to step 2.  Step 2: Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its current price to the present value of its expected cash flows. It's a complicated analysis made simple with a system from NewConstructs. When we run Google's stock, we find it's rated "neutral." In other words, the current stock price is equal to what the company is expected to generate in cash over it's lifetime. Using this analysis, it would appear Google isn't cheap, but it's not pricey either.  Transparent Value, a website that figures out what business milestones a company must meet to justify its stock price, gives us additional information. It says Google has a 98.4% chance of hitting the financial targets it needs to justify its current price. The stock looks pretty good based on this step.  Step 3: Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the company can increase earnings 27.5% a year the next five years, as analysts expect, that would put the stock in the "buy" range. That's a green light for investors who believe the price-to-earnings ratio will return to historical norms. Keep in mind, though, there aren't many companies of the size of Google that have been able to grow that fast.  Step 4: Check the company's financial health. Before investing in any company, you want to make sure it's in good financial shape. A quick way to check is to look at where it falls on the USA TODAY Stock Meter, which ranks stocks from conservative (1) to aggressive (5). Google scores a solid 2.6 here. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or name into the Get a Quote box.  As you can see, Google is one of those stocks that's its hard to find big faults with. It scores pretty well in the four criteria we look for and has built an enviable enterprise in a short period of time.But you must know what you're in for, when you own Google. The stock is extremely risky — and may be too much for many investors to handle during the down times. It's your call.  Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.  You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference.
Q: I would like to buy Google stock (GOOG) but my husband says no, because he thinks it has gone up too much already. What do you think?...