The recent choppiness seen in the stock market pressured tech stocks over the past couple of weeks, dragging shares of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) from a record high of $1,008.61 to $940.
The general tech stocks pressure has eased, with the Nasdaq Composite Index back near its all-time highs, thanks to some solid earnings reports from the likes of Oracle Corporation (NYSE:ORCL) and Adobe Systems Incorporated (NASDAQ:ADBE).
Still, GOOG stock’s decline raised questions about whether the tech conglomerate — havingdelivered a broad assortment of innovations and disruptive initiatives in the past decade — has seen its uptrend come to end?
I don’t believe that’s that case. With some patience, GOOGL stock — even factoring in the recent pullback — remains a strong bet to reach $1,100 per share.
Reasons to Love GOOGL Stock
The main drivers of the Google’s business, such as search engine advertising sales which comprise the lion’s share of quarterly revenues, haven’t changed. The company recently showed that its core search business is not only driving user engagement higher, but volumes have also increased, driven by a 44% rise in total paid clicks in Q1.
What’s more, while Facebook Inc (NASDAQ:FB) is broadly regarded as dominating mobile, the strength of Google’s mobile platform is on the rise, too.
Thanks to GOOGL management’s sharpened focus on improving and increasing mobile experiences, Accelerated Mobile Pages (AMP) has paid huge dividends. The ad content technology is being accepted by publishers and more than 700,000 domains around the world. This new mobile initiative has not only strengthened the company’s control on the browser via Android, it has also solidified distribution agreements with Apple Inc. (NASDAQ:AAPL).
Meanwhile, advances in cloud computing, where it competes with Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT), continue to keep GOOGL relevant in high-growth markets.
Combined with moonshots such as self-driving cars and artificial intelligence, where GOOGL is arguably the leader in those categories, gives it an inside track on ways to further monetize its search dominance.
From a valuation perspective, GOOGL stock — currently at around $937 — is still relatively cheap despite being priced at 24 times fiscal 2018 estimates of the $40.55 per share. While that forward P/E is about five points above the S&P 500, those estimates assume year-over-year earnings growth of almost 20%, which would be about four times the growth rate of the S&P 500.
I expect GOOGL stock to rise higher as the company’s second quarter earnings report — due out the third week of July — approaches.
Wall Street expects GOOGL to deliver earnings of $8.25 per share on revenue of $25.6 billion in the June quarter. In the year-ago quarter, the company earned $8.42 per share on revenue of $21.5 billion. Assuming top- and bottom-line beats and solid guidance, GOOGL stock should easily regain its all-time high of $1,008.61.
Bottom Line for GOOGL Stock
With cash and short-term investments of around $92.4 billion, up $6.11 billion from the fourth quarter, fueling innovations in other areas such as artificial intelligence, Google has many paths to sustainable growth in the quarters ahead.
Investors who are looking for a long-term holding period — say 12 to 18 months — GOOGL stock remains on track for $1,100 by this time next year, making for a 11.5% return from current levels.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
