Alphabet stock closed at a record high Monday just days before it was set to report third-quarter results. Then it pulled back. Maybe traders were buying the rumors and selling the news, but the action was rather early for that.
Either way, GOOGL stock is back to putting up gains, and between fundamentals and technicals it won’t stop soon.
Alphabet is up just 6% for the year-to-date. That outperforms the broader market by only 2 percentage points, but then, GOOGL has been a second-half story.
And what a story it has been.
Since the market reset in late June, GOOGL stock is up more than 20%. The S&P 500 is up a bit more than 6% over the same span. With window-dressing season coming up soon, it would’t be surprising to see Alphabet get some extra oomph from fund managers trying to spruce up their portfolios before year-end.
Click to Enlarge Not that GOOGL needs such tricks; Alphabet’s charts are favorable, too.
GOOGL finally broke resistance at its 50-day moving average mid-summer and hasn’t looked back since. In short order, it climbed past the 200-day moving average and then carved out a golden cross. End-of-the summer trading was choppy, but shares took off two weeks into October.
Indeed, GOOGL stock has tacked on 2.3% over the last month versus a drop of 1.3% for the broader market.
However, the biggest tailwind for Alphabet comes in the form of its latest earnings report.
You Can’t Stop GOOGL Stock
In the most recent quarterly release, Alphabet reported earnings of $9.06 a share. That easily eclipsed analysts’ average estimate for $8.63 a share, according to a poll by Thomson Reuters. Revenue increased 20% year-over-year to $22.45 billion. The Street was looking for the top line to hit $22.05 billion.
GOOGL’s enviable rate of growth comes courtesy of mobile ads, which is still an industry with plenty of room to expand. Consumers’ obsession with their smartphones has them clicking on ads at impressive pace. The number of clicks on Google ads rose by a third year-over-year. The segment hasn’t delivered a comparable performance in four years.
For everything else that’s going on with Alphabet — and there is, indeed, a lot — it comes down to mobile advertising. That’s the crux of the bull case on the name, and it’s hard to refute.
Here’s how RBC Capital Markets analyst Mark Mahaney put it on CNBC:
“The core advertising business is the real reason we’re still bulls on the stock. This is now 19 quarters in a row of 20% year-over-year growth. Almost for that reason alone this thing remains a long for us, it’s our number two pick in the space.”
Mind you, that’s 20% year-over-year growth on a big base that’s only getting bigger. The law of large numbers does not yet apply. The blemish was that cost-per-click prices continued to decline.
If that wasn’t enough to feel confident in GOOGL stock through year-end and beyond, Alphabet sweetened the deal with a $7 billion stock repurchase program.
The tailwinds just keep blowing.
It can be dangerous when everybody agrees, but it’s wise to accept the wisdom of the crowd with Alphabet stock these days. Of the 48 analysts reporting to Thomson Reuters, only two call it a hold. One analyst rates it a sell.
With a forward price-to-earnings multiple of 20 on a forecast long-term growth rate of 18%, GOOGL stock doesn’t look overpriced at all.
You can sum it up with one word: Buy.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.