Alphabet Inc (GOOG, Financial) recently experienced a daily loss of 3.33%, yet the stock has gained 8.43% over the last three months. With an Earnings Per Share (EPS) of 6.52, investors are keen to understand whether the current stock valuation is justified. The central question we aim to answer is: Is Alphabet fairly valued?
Our valuation analysis will delve into various financial metrics and intrinsic value estimations to provide readers with a clear picture of Alphabet's current market standing. Continue reading for a detailed examination of Alphabet's valuation.
Company Introduction
Alphabet Inc (GOOG, Financial) is a global powerhouse, predominantly recognized for its subsidiary, Google, which contributes to nearly 90% of its revenue, mainly through online advertising. Other revenue streams include Google Play, YouTube, hardware sales, and cloud computing services. The company is also known for its ambitious 'other bets' in cutting-edge technology sectors. When comparing Alphabet's current stock price of $167.9 to the GF Value of $152.63, it becomes essential to assess whether the stock is trading at a fair market value.
Understanding the GF Value
The GF Value is a proprietary measure that gauges the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. This value serves as a benchmark for what the stock should trade at under fair market conditions.
Currently, Alphabet (GOOG, Financial) is deemed fairly valued according to the GF Value. The company's market cap stands at an impressive $2.10 trillion, aligning closely with the GF Value estimate. Investors can expect the stock price to oscillate around this line, with significant deviations suggesting potential overvaluation or undervaluation, and, consequently, implications for future returns.
Given that Alphabet is fairly valued, the long-term return of its stock is likely to mirror the rate of its business growth.
Financial Strength
Assessing the financial strength of a company is crucial before investing. Alphabet's cash-to-debt ratio stands at 3.89, placing it in a challenging position within the Interactive Media industry. Despite this, Alphabet's overall financial strength score is a robust 9 out of 10, indicating a strong financial foundation.
Profitability and Growth
A company's profitability is often a harbinger of investment safety. Alphabet has maintained profitability over the last decade, with an impressive operating margin of 27.42%, outperforming 88.66% of its industry peers. Moreover, Alphabet's consistent growth, with an average annual revenue increase of 22.1%, further solidifies its investment appeal.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to capital costs. Alphabet's ROIC of 29.83 significantly surpasses its WACC of 11.54, indicating efficient capital use and promising investor returns.
Conclusion
In summary, Alphabet (GOOG, Financial) appears to be fairly valued in the current market. The company boasts strong financial health and profitability, with growth rates that are commendable within the Interactive Media industry. For a deeper understanding of Alphabet's financials, investors can explore 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.
