Google Is on Sale Today and Value Investors Will Like the Deal

Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock is on sale today. On Jan. 5, by mid-day, GOOG stock had fallen to $2,792 per share. This makes its performance year-to-date negative 3.5% in 2022.

A photo of someone typing on a computer whose browser is open to Alphabet's Google search page.
Source: Castleski /

This is quite a turnaround from 2021. As I wrote in my recent article on Dec. 29, “Google Is Set to Soar Over $4,000 Next Year,” GOOG stock had a very good year. The stock ended 2020 at $1,751.88 and then closed on Dec. 31, 2021, at $2,893.59 per share. That means its performance during 2021 was positive 65.17%. That is an extremely powerful return and a great return on investment for most investors.

In my last article, I argued that the stock is likely to move at least 37.4% higher to $4,024 per share. I based my analysis on the company’s extraordinarily powerful free cash flow (FCF) performance during the third quarter, ending Sep. 30.

That produced a free cash margin of 28.75%. For the nine months ending Sep. 30, the average FCF margin was 20.4%. So, I estimated that going forward the company would be able to achieve a 27% FCF margin.

Based on this, and using a 3% FCF yield metric, I came up with a target market value of $2.68 trillion. This is derived by dividing the forecast FCF of $80.4 billion by 3%. That works out to $2.68 trillion and a price per share of $4,024.

Why it’s on Sale

However, not everyone seems to like this analysis. For example, Barron’s reported on Jan. 5 that (NYSE:CRM) and Adobe (NASDAQ:ADBE) are trading sharply lower after an analyst downgraded them.

UBS analyst Karl Keirstead lowered his recommendations on these two software companies and the carnage spread over to Alphabet. According to the Barron’s article, “Keirstead lowered his ratings on both companies to Neutral from Buy.”

The problem is that Alphabet makes most of its money selling advertising, not software, like these other two companies. The dynamics of its powerful free cash flow are a lot different from selling subscriptions or software-as-a-service (SaaS).

Why would Alphabet be lumped into a downgrade with software stocks? There is no good reason, as is often the case in the market. This is why it is on sale now. Investors likely are worried, in a domino-type fear, that all high technology stocks will somehow suffer during 2022.

The problem with this reasoning is that it does not make sense. Google’s ad-related earnings are correlated to economic growth in general, not software sales or even high-technology company sales. All indications are that 2022 will show positive economic growth.

As a result, common sense indicates that Alphabet will continue to make high levels of free cash flow. Therefore, my analysis stands and investors are likely to make money investing in GOOG stock this year.

What To Do With GOOG Stock

As you might suspect, I believe that this is a good time to buy GOOG stock. Value investors don’t always have to understand why a stock is on sale.

This is just like when you go to a store. You don’t worry about the motivations behind why the item you want is now on sale. Unless it’s damaged, which should be readily apparent, the sale price is usually a good buy.

That is the case here. Assuming my prior analysis still holds, this implies that the $4,024 price target provides an upside of 42.8% or even more.

Moreover, other analysts still like GOOG stock, as well. Although, as I pointed out in my earlier article, they are not as sanguine as I am. For example, TipRanks reports that the average of 28 analysts is just $3,368 per share or about 20% more than today’s price.

Bottom line: This is a good time to buy a high-quality stock on sale with the possibility of making almost 43% over the year.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here.

Article printed from InvestorPlace Media,

©2023 InvestorPlace Media, LLC