Alphabet Is Worth Up to 31% More in 2022 Based on Analysts’ Projections

Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock is on sale today. On Jan. 26, GOOGL stock fell to $2,594.80 per share. This is even lower than the $2,893.59 price it closed at last year. This means it has fallen almost $300 so far year-to-date, and gives it a loss of 10.3% in 2022.

a Google Pixel smartphone

Source: Tero Vesalainen / Shutterstock.com

That might be expected from profit-taking after last year’s stellar gains. For example, GOOGL stock was up 65.17% last year, as I showed in my last article on Alphabet on Jan. 5.

That was a very good return and could have prompted many investors to take some money off of the table. This might have been one reason for the downturn so far this year.

Where Things Stand With Alphabet

I suspect the main reason for GOOGL stock’s decline is likely market forces. When the Federal Reserve begins raising rates, that could slow down economic activity. That could have a follow-on dampening effect on advertising spending in the U.S and even abroad.

Alphabet will announce its fourth-quarter and full-year 2021 results on Tuesday, Feb. 1. Analysts will be able to see if management discusses its outlook for 2022 and if they forecast any downturn in ad spending.

Analysts surveyed by Refinitiv and reported by Yahoo! Finance foresee revenue up 39.3% in 2021 to $254.29 billion. But for 2022, they forecast gains of just 17% to $297.63 billion. In other words, they already are expecting a significant slowdown in revenue growth.

This could account for some of the weakness seen in GOOGL stock recently. However, Barron’s pointed out earlier this month that although two analysts foresee weak first-half results for Alphabet, the second half in 2022 could be strong. By “weak” they mean slower growth, due to comparisons with the strong growth last year that occurred during the rebound from Covid-19 lows.

Moreover, one of the analysts, Justin Post of BofA Global Research, listed five growth themes for the company that could help propel its ad-driven sales going forward. These include short video formats, augmented and virtual reality, creator economy growth (i.e., Youtube), ads in e-commerce and changes made by Apple (NASDAQ:AAPL) to ad formats and data privacy.

Where Analysts Stand on Alphabet

Analysts are universally positive on GOOGL stock. For example, Yahoo! Finance reported that nine analysts had an average target price of $3,382 per share as of Jan. 26. This is 30.8% over yesterday’s price of $2,584.80.

In addition, TipRanks reports that 27 analysts, who have written on the stock in the last three months had an average price target of $3,386.67 as of Jan. 26.

This represents a potential upside of 31% for GOOGL stock over the next 12 months. That is not as good as last year’s 67% performance, but it still is a very good potential return for most investors.

However, Seeking Alpha reports that 47 analysts had an average price target of $2,965 per share as of Jan. 26. This represents a potential gain of 14.74% during 2022, a good deal lower than the other survey sites. But it also includes a much higher number of analysts, many of whom might not have updated their price targets recently.

What to Do With GOOGL Stock

Analysts are likely going to be very interested in management’s comments on the ad spending trends they are seeing so far in 2022. They will want to know if advertising growth is actually slowing due to higher interest rates or Covid-19-related weakness.

I suspect this is not the case and that analysts’ fears for 2022 and first-half weakness are probably overdone. Therefore, it might turn out that GOOGL stock could actually significantly outperform analyst targets by the end of 2022. As a result, given the weakness in GOOGL stock right now, it could be a good time to accumulate further shares in the company.

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 InvestorPlace.com Publishing Guidelines.

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


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