Wednesday, September 3, 2008

Google Finance Can Lead You Astray

Google Finance provides a plethora of data, is easy to use, and provides a flexible stock screener. It has become the first place I go to in order to read about what a company does, and get a quick feel for its assets, debt and history of income. But it contains a ton of errors. Therefore, you absolutely cannot make an investment based purely on the statistical read you get from Google Finance.

For example, if a company changes its fiscal year, Google will often misinterpret a partial and transition year as a full year. Google shows Tuesday Morning's (NASDAQ: TUES) revenue for the 12 months ended June 2007 to be about half that of the previous 12 month year-end. A deeper look shows no such disaster at the company, as the period Google is displaying is actually only for 6 months.

Google will also mess up the dividend yield. I have several examples of this, one being Linamar, which we've discussed here, currently listed with a dividend yield of 0%, but it actually pays close to 2%. In many cases, Google does not always reflect a dividend change quickly, and the quoted dividend yield may reflect stale data.

Google Finance also won't tell you about stock options outstanding. As pretty much all value investors will tell you, the value of stock options directly impacts the value of common shares. As such, you need to know options that are outstanding before investing in the common shares of any company.

There are also many occasions where the number of shares outstanding is listed wrong on Google. This is especially frequent when a stock split has recently occurred.

Although not completely Google's fault, the shareholder's equity section can be a bit deceiving when preferred shares are involved. If you're buying common shares, you aren't buying "shareholder's equity" as stated on the front page, but rather only the common equity portion of shareholder's equity, which could be a lot smaller if pref shares are involved. In the case of AMCON Distributing (AMEX: DIT), common share equity is but $9 million, even though shareholder's equity is listed at $14 million.

The bottom line is, after getting a feel for a company on Google Finance, head over to the company's website and grab its annual report and subsequent quarterly filings. This will help you eliminate some of the false positives. Unfortunately, this doesn't help us identify companies that are cheap but that look expensive on Google Finance due to an error!

4 comments:

Sebastian said...

I agree, and I mainly use GF for charting, which is very versatile. For initial fundamental analysis I tend to use Yahoo Finance or stockhouse.com

augustabound said...

I use it for a quick glance but the dividend issues bother me. For some Canadian companies they list the dividend in the chart but not in the condensed financials above.

Admin said...

Do not even get me started on information reliability. Both Google and Yahoo omit dividend payments in their historical data, thus distorting significantly the picture.

Anonymous said...

All of the sources are likely to have errors ... why would anyone expect that everything (or anything) is error free? Furthermore, remember that you are getting a wealth of information for FREE ... and anytime you get anything for free you should be careful.. Part of doing "due diligence" is learning to look at things from many angles and draw your own conclusions.

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