Has Googles stock price inflated too far? The “fair valuation” of Google’s stock price, and whether is Google is overpriced is the topic of discussion at many a water cooler these days.

The battle of valuing Google’s stock price, whether based on earnings, cash flow, market share growth, aquisition strategy, or some other form of financial engineering is a discussion that we have little to contribute to. I would make the observation that at a current market cap of over 170 billion dollars, that it’s closer to the top than it is a bottom. To make the case that it could be a Peter Lynch ten bagger would imply that it would get to a market cap of almost 2 trillion dollars, which is a pretty rich valuation by almost anyone’s standard.

But all this discussion about whether Google stock is overpriced misses the point. All the valuation tools in the world are really an attempt to answer one question. Is a stock going to go up in value in the near future. That’s all any trading tools or valuation tools attempt to answer. And they all are really assessing probabilities, as the answer is never certain. And, almost more importantly, whatever tool you use to make that assesment has to give you an exit point, or time to sell, as well.

In our systems, we attempt to answer the question, is a fund more likely to go up in the immediate future than the other alternative funds we can invest in by using relative strength metrics with a trend following system.

If you were to look at Google stock as one of our ETF selections, currently it would rank reasonably well. Google’s obviously in an uptrend, with little sign of a short term top, but it has also been somewhat volatile, which gets penalized in our systems. It would be an OK choice, it looks like there is still money to be made, but it will be more volatile than most choices at this point. I’m putting my money elsewhere.

So, is Google stock overpriced? Is Google stock inflated? Using fundamental analysis, the case can be made that it is, but that’s not really the point, is it?