Here is a look at how Google, Inc. (GOOG) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7

1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period - PASS
6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
3. Earnings Stability - positive earnings per share for at least 5 years - PASS
4. Dividend Record - currently pays a dividend - FAIL
5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

Balance Sheet - 9/30/2013

Earnings Per Share

Earnings Per Share - Modern Graham

Conclusion:

Google has displayed strong growth over the historical period we've reviewed, but the market seems to already account for that growth. The company fails to fulfill the requirements of the Defensive Investor by not paying a dividend, and trading at high PEmg and PB ratios. It does qualify for the Enterprising Investor, though, after passing every test other than the dividend payment requirement. As a result, Enterprising Investors should move forward with further evaluation.

From a valuation perspective, as mentioned, the market's implied growth rate of 12.21% is close to what has been seen over the last number of years. Google's EPSmg (normalized earnings) have grown from $10.74 in 2008 to an estimated $32.23 for 2013. This level of growth exceeds the market's implied rate, but falls within a margin of safety and results in the ModernGraham valuation model indicating the price is within the fairly valued range. Enterprising Investors should take a close look at Google to determine whether it fits within their individual portfolios, while taking a look at our recent reviews of Google's main competitors, Microsoft (MSFT) (ModernGraham Valuation) and Apple (AAPL) (ModernGraham Valuation).

What do you think? Do you agree that Google Inc. is fairly valued? Is the company suitable only for Enterprising Investors?

Disclosure: The author did not hold a position in Google Inc. (GOOG) at the time of publication and had no intention of entering into a position within the next 72 hours.