Alphabet Inc (GOOG, Financial) has recently shown a daily gain of 5.34%, and despite a modest 3-month gain of 1.65%, investors are keen on understanding the company's valuation in relation to its Earnings Per Share (EPS) of $5.21. The critical question we aim to answer is whether Alphabet Inc (GOOG) is fairly valued at its current market standing.
Through the following analysis, we will delve into the financial strength, profitability, growth, and market valuation of Alphabet to ascertain its investment potential. Read on to explore the intricate details of Alphabet's valuation and make an informed decision.
Company Introduction
Alphabet Inc (GOOG, Financial), the parent company of the internet media giant Google, stands as a formidable force in the tech industry. Google's revenue, which constitutes 99% of Alphabet's total income, comes primarily from online ads. Beyond advertising, Alphabet's diverse revenue streams include Google Play and YouTube sales, cloud service fees, and hardware products like Pixel smartphones and Nest smart home devices. The company's moonshot investments in technology ventures such as Verily, Google Fiber, and Waymo further illustrate its innovative drive and future potential.
Comparing Alphabet's current stock price of $138.42 to the GF Value of $147.7 offers a glimpse into its fair market valuation. This comparison sets the stage for an in-depth assessment of Alphabet's intrinsic value, blending financial metrics with key company insights.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value that incorporates historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's fair trading value.
For Alphabet (GOOG, Financial), the GF Value indicates that the stock is fairly valued. With a market cap of $1.70 trillion and a stock price of $138.42, Alphabet's valuation aligns with its business growth and historical trading patterns. This suggests that the long-term return of Alphabet's stock may closely reflect the company's growth rate.
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Financial Strength
Investors often seek companies with robust financial strength to minimize the risk of capital loss. Alphabet's cash-to-debt ratio of 4.13, while trailing behind 53.11% of its peers in the Interactive Media industry, still reflects a strong financial position, as evidenced by GuruFocus's financial strength ranking of 9 out of 10 for the company.
The following chart illustrates Alphabet's debt and cash evolution over the years:
Profitability and Growth
Alphabet's consistent profitability over the past decade underscores its lower risk profile and solid performance prospects. With an impressive operating margin of 26.51%, Alphabet outperforms 87.97% of companies within the Interactive Media sector. The company's strong profitability is complemented by significant growth, with a 3-year average annual revenue growth of 22.9%, ranking above 72.45% of its industry peers.
Moreover, Alphabet's 3-year average EBITDA growth rate of 21.8% surpasses that of 64.96% of companies in the Interactive Media industry, indicating robust growth prospects.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into Alphabet's value creation. With an ROIC of 28.57% against a WACC of 11.08%, Alphabet demonstrates its ability to generate cash flow effectively relative to its invested capital.
The historical ROIC vs WACC comparison of Alphabet is presented below:
Conclusion
In summary, Alphabet Inc (GOOG, Financial) is assessed as fairly valued. The company boasts a strong financial condition and robust profitability. Its growth outpaces a significant portion of the Interactive Media industry. For a deeper dive into Alphabet's financials, consider reviewing its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
