With a daily gain of 5.81% and an Earnings Per Share (EPS) (EPS) of $4.49, Alphabet Inc (GOOGL, Financial) seems to be attracting attention in the stock market. The question is, is the stock modestly undervalued? This article aims to provide a valuation analysis of Alphabet Inc (GOOGL) to answer this question. Read on for an in-depth exploration of the company's value, performance, and prospects.
Company Overview
Alphabet Inc (GOOGL, Financial), a holding company, is predominantly recognized for its wholly-owned subsidiary, Google. This internet media giant generates 99% of Alphabet's revenue, with over 85% derived from online ads. Other revenue sources include sales from Google Play, YouTube, cloud service fees, and hardware products like Chromebooks, the Pixel smartphone, and smart home products. Alphabet's 'moonshot investments' in its 'other bets' segment are focused on technology that enhances health, provides faster internet access, and enables self-driving cars, among others.
Understanding the GF Value
The GF Value is an exclusive method used to determine a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor derived from the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Alphabet (GOOGL, Financial) appears to be modestly undervalued, according to the GuruFocus Value calculation. Currently priced at $129.31 per share with a market cap of $1.6 trillion, Alphabet's stock shows potential for higher long-term returns given its relative undervaluation.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Alphabet's cash-to-debt ratio of 3.95 ranks below 56.54% of companies in the Interactive Media industry. However, its overall financial strength is strong, scoring a 9 out of 10.
Profitability and Growth
Investing in profitable companies like Alphabet, which has remained profitable for ten years, carries less risk. With revenues of $284.6 billion and an EPS of $4.49 in the past 12 months, Alphabet's operating margin of 25.35% outperforms 86.8% of companies in the Interactive Media industry. Additionally, Alphabet's 3-year average revenue growth rate surpasses 73.99% of companies in the industry, and its 3-year average EBITDA growth rate of 21.8% ranks better than 63.08% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Alphabet's ROIC of 27.36% significantly exceeds its WACC of 10.61%, indicating that the company is creating value for its shareholders.
Conclusion
In conclusion, Alphabet (GOOGL, Financial) appears to be modestly undervalued. The company's strong financial condition and profitability, coupled with its growth that outperforms 63.08% of companies in the Interactive Media industry, make it an attractive prospect for investors. For more in-depth information about Alphabet, you can check out its 30-Year Financials here.
For high-quality companies that may deliver above-average returns, consider checking out the GuruFocus High Quality Low Capex Screener.
