While the stock market continues to climb to new highs, not all of FAANG has been going up with it. Fortunately, for those who own Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Google stock has been grinding higher.
Along with Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), these mega-capitalization tech titans continue to grind to new all-time highs. The recent ascents leave AAPL and MSFT with market caps in excess of $1 trillion, while GOOG stock now commands a market cap north of $900 billion.
That actually pushes the company’s value above Amazon (NASDAQ:AMZN), which at one point was the most valuable company in the U.S. However, AMZN has had trouble gaining much upside traction over the past year. It’s been one of the strugglers in the FAANG group, with only Netflix (NASDAQ:NFLX) doing worse.
In any regard, where does that leave Google stock? After hitting new highs, many investors feel that they have missed the boat. Others feel that the recent breakout could still send shares higher from here.
To figure out which, let’s take a closer look at the stock.
Valuing Google Stock
One thing I’ve always loved about Google stock? Its growth to valuation comps. Put simply, the valuation for this blue-chip tech giant remains reasonable, even as we look at solid growth prospects.
Analysts expect revenue to grow 18.9% this year and another 17.9% in 2020. For a near-$1 trillion company, those growth rates are certainly impressive. Consider for a moment that Apple and Microsoft — the two companies larger than GOOGL stock — have growth rates considerably lower than that.
Analysts expect high-single-digit revenue growth from Apple this year and next year. For MSFT, estimates call for roughly 11.5% growth in each of the two years. In other words, for its size, Google has robust revenue growth.
Some may criticize the company’s earnings growth, which is forecast at just 5.9% in 2019. That’s fair. But more than three quarters of the way through 2019 and the focus shifts from current year to next year. In fiscal 2020, estimates call for a dramatic bottom-line acceleration, up to 16.7% growth.
At present prices, GOOGL stock trades at roughly 27.5 times this year’s earnings estimate of $46.30 per share. Shares trade at about 24 times 2020’s estimate of $54 per share. Let’s not forget that, with $121 billion in cash and just around $4 billion in long-term debt, Google has one of the strongest balance sheets in the market. Some would argue it has the strongest.
But here’s my opinion. Procter & Gamble (NYSE:PG) trades at almost 25-times earnings with 4.2% and 9% revenue and earnings growth, respectively. McDonald’s (NYSE:MCD) trades at a similar valuation despite 0% earnings growth forecasts for this year and an 80 basis point decline in revenue.
These names garner premiums because they are blue-chip holdings. That’s fine, and they have great businesses. But with double-digit sales and revenue growth and $120 billion in cash, Google stock also deserves this designation as well.
Trading GOOGL Stock
Below is a 16-month daily chart of Google stock. It highlights how $1,290 was the ceiling, while approximately $1,000 was the floor. This set of range resistance and range support pinballed GOOGL stock back and forth over the last year and a half.
In any regard, GOOG stock has been able to breakout over range resistance. The recent rally has taken shares to a new, all-time high of almost $1,334. It’s worth pointing out that, despite the breakout, shares of Alphabet have not become overbought. At least not in the technical sense according to the chart (blue circles).
It’s also worth emphasizing that Google stock has been channel-bound (blue lines) since its rally off the June lows. The roughly 30% rally from those lows has been very orderly over the past six months. The latest “cooling off” came as shares tested into channel resistance a few days ago.
So now what? Simply put, GOOGL stock remains a buy-on-dips candidate.
Let’s see if we can get a decline into the $1,290 to $1,300 breakout area. Not only would it be bullish to see former resistance act as support, but Google stock would also have its 20-day moving average and channel support nearby.
A break below this mark wouldn’t necessarily be bearish, but it would be a signal to use more caution. It could trigger a fall down to the 50-day moving average and the 78.6% retracement near $1258.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long GOOGL and AAPL.
