Alphabet Inc (GOOGL, Financial) has experienced a daily loss of 3.37%, yet it has gained 8.21% over the last three months. With an Earnings Per Share (EPS) of 6.52, investors are keen to understand if the stock is fairly valued. The following analysis delves into Alphabet's valuation to determine if the current market price reflects the true value of the company.
Understanding Alphabet Inc (GOOGL, Financial)
Alphabet Inc (GOOGL), the parent company of the internet media giant Google, generates nearly 90% of its revenue from Google services, predominantly online ads. Other revenue streams include Google Play and YouTube sales, hardware products, and cloud computing services. Additionally, Alphabet invests in 'moonshot' projects through its other bets segment, focusing on advancements in health, internet access, autonomous vehicles, and more. Currently valued at a market cap of $2.10 trillion with sales of $318.10 billion, Alphabet stands as a significant player in the tech industry. The comparison between Alphabet's stock price of $166.15 and the GF Value of $151.3 will provide insights into its current market standing.
Breaking Down the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated by considering historical trading multiples, an adjustment factor based on the company's past performance and growth, and future business performance predictions. This measure suggests that Alphabet (GOOGL, Financial) is fairly valued, as the current stock price is close to the GF Value. This valuation implies that the long-term return of Alphabet's stock should align with the company's business growth rate.
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Assessing Alphabet's Financial Strength
When considering an investment, the financial strength of a company is crucial. Alphabet's cash-to-debt ratio of 3.89 places it in a weaker position than 53.23% of its peers in the Interactive Media industry. However, with an overall financial strength rating of 9 out of 10, Alphabet's financials are robust, indicating a lower risk of permanent loss for investors.
Profitability and Growth Prospects
Consistent profitability is a key indicator of a lower-risk investment. Alphabet has maintained profitability for the last ten years, with an impressive operating margin of 27.42%, ranking higher than 88.66% of its industry counterparts. The company's profitability score is a perfect 10 out of 10, reflecting its strong position.
Growth is another critical valuation factor. Alphabet's average annual revenue growth of 22.1% outperforms 73.33% of the Interactive Media industry. The company's three-year average EBITDA growth rate of 19.6% also indicates a healthy growth trajectory.
ROIC vs. WACC: A Measure of Value Creation
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is essential for evaluating profitability. Alphabet's ROIC of 29.83 significantly exceeds its WACC of 11.54, suggesting the company effectively creates value for shareholders.
Conclusion: Alphabet's Fair Valuation
In conclusion, Alphabet (GOOGL, Financial) appears to be fairly valued, with strong financial health and robust profitability. Its growth outpaces a significant portion of the Interactive Media industry. To explore Alphabet's financial history in-depth, interested investors can view 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.
