The coronavirus may have decimated market indices, but how does this factor into future prospects for Alphabet (NASDAQ:GOOG GOOGL)? GOOG stock, a FANG component and de-facto “NASDAQ Blue Chip”, has tumbled in the market maelstrom.
Shares have dropped from above $1500 per share to just over $1000 per share. but the question is, will they fall further? It’s tough to predict whether a bottom is near. Or if the party’s just started.
However, outside of general market action, could the search giant’s shares benefit from flight-to-safety?
With high margins, little debt, and a $120 billion war chest, GOOG stock can more than weather the current storm. Yet, despite valuation falling to more reasonable levels, there could be additional near-term downside risk.
However, all things considered, Alphabet’s current stock price could be a tempting entry point for a long-term investor. Let’s dive in, and see whether now’s the time to buy, or if taking one’s time is the smarter move.
COVID-19 and GOOG Stock
Obviously, the recent outbreak and the economic fallout is on everyone’s mind. But, how does this affect Alphabet’s main revenue stream, online advertising? Atlantic Equities’ James Cordwell recently ran the numbers.
The result? Well, mixed.
The analyst estimated 2020 ad revenue growth could fall into single-digits for both Google and Facebook (NASDAQ:FB), but Cordwell remains optimistic. He sees online advertising seeing less of an impact from this recession than in prior downturns. Also, Cordwell sees the two online ad giants taking greater market share from legacy ad platforms like television.
With this in mind, Cordwell remains bullish on GOOG stock. I share his sentiments. As long as online advertising remains resilient as expected. It seems logical that the recent crisis could be a wash for the space.
Americans may be tightening their belts. But, with millions working from home and avoiding public places, eCommerce could see a boost. This means Google could remain stable, as search ad demand remains strong.
Will Alphabet Shares Rebound to Past Highs?
Downside risk in GOOG stock may be less severe than other “hot stocks.” Yet, the company may not have anything in the pipeline that could move the needle. If and when a rebound occurs. As InvestorPlace’s Vince Martin discussed March 18, a lack of catalysts could mean shares won’t rebound as massively as some other stocks.
Alphabet has some interesting things in the pipeline. Waymo automated vehicles and additional “Other Bets” in the company’s portfolio could help deliver growth as the flagship search business matures. But, unlike Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT), the company is an “also-ran” in the cloud computing department.
Also, while shares have come down valuation-wise, GOOG stock isn’t exactly cheap relative to its FAANG peers. Sure, you can buy shares today at a forward price-to-earnings (P/E) ratio of 19.5. But, Apple (NASDAQ:AAPL) stock trades at a forward P/E of 17.4. Facebook’s forward multiple is even lower, at 16.5. At the moment, only Amazon and Netflix (NASDAQ:NFLX) are more richly-priced FAANG stocks.
Considering this factor, shares could fall further before they enter “value territory.” With the potential for growth to cool from the 15%-20% range to “low single digits”, calling Alphabet a “growth stock” could fast become a stretch.
The Bottom Line on GOOG Stock
In short, it’s easy to see Google treading water around the $1000 price level or dipping lower, but, either way, it could be a long time before it retraces its high-water mark. So, why even consider shares a buy? Flight-to-safety could be a positive factor.
Other names may show promise of above-average growth. But in the “new normal,” safe, but somewhat dull Alphabet stock may just be the ticket for your portfolio. With slower-growth priced into shares, the stock may tread at current level. But that’s better than the specter of another 20-30% dip!
Also, shares will almost certainly rebound if and when the sell-off dissipates. Whether it’s weeks, months or (hopefully not) years, investing in Alphabet today means you won’t miss out on a comeback rally.
While other opportunities offer greater upside, they also offer heavier risk to boot. On the other hand, GOOG shares represent a wonderful business, selling for a fair price.
Don’t expect this stock to light the world on fire, but for what I like to call a “NASDAQ blue chip” opportunity, consider shares a buy, at today’s prices and below.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
