Alphabet Inc (GOOGL, Financial) has seen a daily gain of 3.36%, a three-month gain of 7.55%, and an Earnings Per Share (EPS) (EPS) of 4.72. The question that arises is: Is the stock fairly valued? This comprehensive analysis will delve into Alphabet's valuation, financial strength, profitability, and growth to answer this question. We encourage you to read on for an insightful exploration.
Company Introduction
Alphabet Inc is a holding company, with Google as its wholly owned subsidiary. Google accounts for 99% of Alphabet's revenue, with a majority of it coming from online ads. Other revenue sources include sales of apps and content on Google Play and YouTube, cloud service fees, and other licensing revenue. Alphabet also generates revenue from hardware sales, including Chromebooks, the Pixel smartphone, and smart home products. The company's moonshot investments are in its other bets segment, which focuses on enhancing health (Verily), providing faster internet access (Google Fiber), enabling self-driving cars (Waymo), and more.
With a stock price of $135.41 and a GF Value of $146.56, Alphabet (GOOGL, Financial) is estimated to be fairly valued. The GF Value is an estimation of the fair value of the stock, paving the way for a profound exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Alphabet (GOOGL, Financial) is estimated to be fairly valued, according to GuruFocus Value calculation. At its current price of $135.41 per share and the market cap of $1.70 trillion, Alphabet stock is estimated to be fairly valued. Because Alphabet is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Alphabet has a cash-to-debt ratio of 4.06, which ranks worse than 55.4% of 565 companies in the Interactive Media industry. Despite this, the overall financial strength of Alphabet is strong, with a score of 9 out of 10.
Profitability and Growth
Investing in profitable companies carries less risk. Alphabet has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $289.50 billion and Earnings Per Share (EPS) of $4.72. Its operating margin of 25.75% is better than 86.32% of 585 companies in the Interactive Media industry. Overall, GuruFocus ranks Alphabet's profitability as strong.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Alphabet is 22.9%, which ranks better than 73.74% of 514 companies in the Interactive Media industry. The 3-year average EBITDA growth rate is 21.8%, which ranks better than 62.89% of 388 companies in the Interactive Media industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Alphabet's ROIC is 27.32 while its WACC came in at 10.92.
Conclusion
In summary, the stock of Alphabet (GOOGL, Financial) is estimated to be fairly valued. The company's financial condition is strong, its profitability is strong, and its growth ranks better than 62.89% of 388 companies in the Interactive Media industry. If you want to learn more about Alphabet stock, you can check out its 30-Year Financials here.
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