FANG Stocks: Alphabet (GOOGL)
Like Facebook, one of the main attractions to Alphabet is actually the valuation. Trading at 21.8 times next year’s earnings, shares of Alphabet aren’t priced too expensive. Analysts expect GOOGL to churn out earnings growth of 17.5% next year, along with 19.3% annual earnings growth over the next five years.
Alphabet’s founders may have paved the way for internet domination. But there’s a new team member to its C-suite that has given GOOGL a much-needed boost. CFO Ruth Porat joined the company in May 2015.
In the year leading up to her hire, shares had been stagnant, returning just 5%. Since her addition, though, the stock is up a whopping 60%. Does it also seem like a coincidence that Alphabet missed analysts’ estimates on at least six straight quarters prior to her arrival? Since then, Alphabet has topped estimates in five of the past six quarters.
Admittedly, Alphabet’s transparency has been better, making it easier for analysts to form estimates. But this added clarity makes it easier on investors and helps lower volatility. For better or for worse, Alphabet takes some gambles. For instance, consider Alphabet’s self-driving car unit, Waymo. Porat has not stifled this growth. Rather, she has reigned in expenses and channeled GOOGL’s focus. As a result, the bottom line has improved, without future potential being eliminated.
With a consistent core business in Google and potential upsides in businesses like Waymo, GOOGL stock is attractive. With its dependable growth and a reasonable valuation, it’s even better. At just a hair under all-time highs, though, now may not be the best time to buy. A retest of its 50-day moving average near $840 and a further decline to its 200-day moving average near $800 would offer better entry opportunities.
As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.