A strong performer from today's afternoon trading session is Alphabet, whose shares rose 2.4% to $144.15 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
Alphabet Is Reasonably Valued:
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 24.9 and a P/B ratio of 6.34.
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 1.08, 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.
Strong Revenue Growth and an Excellent Current Ratio:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $136,819 | $161,857 | $182,527 | $257,637 | $282,836 | $297,132 |
| Operating Margins | 20% | 21% | 23% | 31% | 26% | 27% |
| Net Margins | 22% | 21% | 22% | 30% | 21% | 22% |
| Net Income (M) | $30,736 | $34,343 | $40,269 | $76,033 | $59,972 | $66,732 |
| Net Interest Expense (M) | $114 | $100 | $135 | $346 | $357 | $329 |
| Diluted Shares (M) | 13,906 | 13,904 | 13,746 | 13,483 | 13,219 | 12,807 |
| Earnings Per Share | $2.21 | $2.47 | $2.93 | $5.64 | $4.54 | $5.21 |
| Avg. Price | $55.66 | $59.42 | $74.07 | $125.53 | $126.61 | $144.47 |
| P/E Ratio | 25.19 | 24.06 | 25.28 | 22.26 | 27.89 | 27.73 |
| CAPEX (M) | $25,139 | $23,548 | $22,281 | n/a | $31,485 | $28,827 |
| Total Debt (M) | $5,341 | $4,554 | $13,932 | $14,817 | $14,701 | $13,781 |
| Current Ratio | 3.92 | 3.37 | 3.07 | 2.93 | 2.38 | 2.04 |
Alphabet has rapidly growing revenues and increasing reinvestment in the business, strong operating margins with a positive growth rate, and an excellent current ratio of 2.04.
