Today we're going to take a closer look at large-cap Technology company Alphabet, whose shares are currently trading at $145.88. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Alphabet Is Currently Under Priced:
Alphabet Inc. offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, Alphabet has a trailing 12 month P/E ratio of 25.1 and a P/B ratio of 6.41.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Alphabet's PEG ratio is 1.11, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
The Company Has a Positive Net Current Asset Value:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $136,819 | $161,857 | $182,527 | $257,637 | $282,836 | $297,132 |
| Revenue Growth | n/a | 18.3% | 12.77% | 41.15% | 9.78% | 5.05% |
| Operating Margins | 20% | 21% | 23% | 31% | 26% | 27% |
| Net Margins | 22% | 21% | 22% | 30% | 21% | 22% |
| Net Income (MM) | $30,736 | $34,343 | $40,269 | $76,033 | $59,972 | $66,732 |
| Net Interest Expense (MM) | $114 | $100 | $135 | $346 | $357 | $329 |
| Earnings Per Share | $2.21 | $2.47 | $2.93 | $5.64 | $4.54 | $5.21 |
| Diluted Shares (MM) | 13,906 | 13,904 | 13,746 | 13,483 | 13,219 | 12,807 |
| Free Cash Flow (MM) | $22,832 | $30,972 | $42,843 | $91,652 | $60,010 | $77,618 |
| Current Ratio | 3.92 | 3.37 | 3.07 | 2.93 | 2.38 | 2.04 |
| Total Debt (MM) | $5,341 | $4,554 | $13,932 | $14,817 | $14,701 | $13,781 |
Alphabet has rapidly growing revenues and increasing reinvestment in the business, generally positive cash flows, and an excellent current ratio of 2.04. The company also benefits from healthy debt levels, decent operating margins with a positive growth rate, and a strong EPS growth trend.
