Alphabet Inc (GOOGL, Financial) has experienced a daily change with a loss of -1.88%, alongside a 3-month decline of -2.73%. Despite these fluctuations, the company maintains an Earnings Per Share (EPS) of 5.21. Investors and market spectators alike are keen to understand: is Alphabet (GOOGL) currently fairly valued? The following analysis delves into Alphabet's valuation, providing insights into whether the current stock price reflects the company's true worth.
Company Introduction
Alphabet Inc (GOOGL, Financial), the parent company of the internet media giant Google, stands as a beacon in the tech industry. With Google accounting for 99% of Alphabet's revenue—predominantly from online ads—its financial performance is critical to Alphabet's overall success. Other revenue streams include Google Play and YouTube sales, cloud service fees, and hardware such as the Pixel smartphone. Alphabet also invests in innovative 'moonshot' projects through its other bets segment, focusing on advancements in health, internet access, autonomous vehicles, and more. Currently, Alphabet's stock price is $132.45, with a market cap of $1.60 trillion, and the GF Value estimates its fair value at $143.34, denoting a stock that is fairly valued.
Summarize GF Value
The GF Value is a unique measure of intrinsic value, considering historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and estimates of future business performance. This GF Value Line represents the ideal fair trading value for a stock. When a stock's price significantly exceeds this line, it may be overvalued and poised for lower future returns. Conversely, if the price is well below the GF Value Line, it could indicate an undervalued stock with higher future returns. Alphabet (GOOGL, Financial), with its current price of $132.45, aligns closely with the GF Value, suggesting a fair valuation.
As Alphabet is fairly valued, its long-term stock return is likely to mirror the company's business growth rate.
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Financial Strength
Investors must weigh a company's financial strength to avoid potential capital loss. Alphabet's cash-to-debt ratio of 4.13, although not leading the industry, still reflects a solid financial standing. With a financial strength rating of 9 out of 10, Alphabet's balance sheet is robust, boding well for its investment potential.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. Alphabet has shown profitability for the past decade, with a notable operating margin of 26.51%, outperforming 84.89% of its peers. This excellent profitability score, coupled with a revenue of $297.10 billion over the past twelve months, underscores Alphabet's strong financial health.
Moreover, growth is a crucial valuation metric. Alphabet's 3-year average annual revenue growth rate of 22.9% surpasses 72.5% of the companies in the Interactive Media industry, highlighting its value creation for shareholders. Its EBITDA growth rate also stands strong, further cementing Alphabet's growth prospects.
ROIC vs WACC
Evaluating a company's profitability involves comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Alphabet's ROIC over the past 12 months is an impressive 28.57, significantly higher than its WACC of 11.07, indicating efficient value creation for shareholders.
Conclusion
Alphabet (GOOGL, Financial) presents itself as a fairly valued investment opportunity with strong financial health and impressive profitability. Its growth rate, better than two-thirds of its industry peers, further enhances its attractiveness. For a deeper understanding of Alphabet's financials, consider exploring 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.
