Alphabet Inc (GOOG, Financial) recently experienced a daily loss of 2.17%, but it has shown a 3-month gain of 8.66%. The company's Earnings Per Share (EPS) stands at 4.72. The question on investors' minds is: Is Alphabet modestly undervalued? This article sets out to answer this question by providing a comprehensive valuation analysis of Alphabet. We invite you to journey with us as we delve deeper into the financials of this tech giant.
Introducing Alphabet Inc (GOOG, Financial)
Alphabet is an influential holding company, with internet media giant Google as a wholly-owned subsidiary. Google generates 99% of Alphabet's revenue, predominantly from online ads. Other sources of revenue include sales of apps and content on Google Play and YouTube, cloud service fees, and other licensing revenue. The company also earns from hardware sales, including Chromebooks, the Pixel smartphone, and smart home products like Nest and Google Home. Alphabet's moonshot investments are in its other bets segment, where it invests in technology to enhance health (Verily), provide faster internet access (Google Fiber), enable self-driving cars (Waymo), and more. The company's current stock price is $129.3, while its GF Value (a proprietary measure of a stock's intrinsic value) is $147.52, indicating that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Applying this valuation method to Alphabet (GOOG, Financial), the stock appears to be modestly undervalued. With a market cap of $1.60 trillion and a current price of $129.3 per share, Alphabet's long-term stock return is likely to be higher than its business growth due to its relative undervaluation.
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