Internet stocks are too pricey to buy. Right? Not so fast — today you can leave your preconceived notions at the door as we’re about to take a deep dive into Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and use the data, not our assumptions, to decide whether GOOG stock is really overpriced.
I’ll be the first to admit that when a stock gets into the quadruple digits, it can become unaffordable for some investors. Thankfully, some brokers offer fractional shares, so that might be a solution to explore.
This still leaves us with some important questions regarding Google stock, though. After being harshly rejected at $3,000, should we prepare for a revisit of that crucial level?
Moreover, is Alphabet growing fast enough to justify buying the shares now? As we try to answer these burning questions, we just might discover that not every technology stock is unreasonably valued.
A Closer Look at GOOG Stock
Back in March 2020, the Covid-19 crisis put investors in full panic mode. Consequently, GOOG stock bottomed out at around $1,000 during that time.
Don’t get the wrong idea here. The Alphabet share price isn’t likely to return to $1,000 anytime soon. Investors can dream of lower prices, but we have to be realistic.
Fast-forward to November 2021, and GOOG stock topped out at roughly $3,000. Therefore, anyone who bought at the pandemic low earned a 200% profit. Then, a number of catalysts caused technology stocks to decline in value. Among these were the omicron Covid-19 variant strain, the threat of the Federal Reserve raising government bond yields soon and the Russia-Ukraine crisis.
GOOG stock has since settled around $2,600. This presents a nice dip-buying opportunity for folks who believe that Alphabet will withstand the aforementioned tech-market headwinds. Really, a revisit of $3,000 should only be a matter of time. As they say, resistance levels are meant to be broken.
The Price Is Right
Let’s bust a myth right now. Even between $2,000 and $3,000, GOOG stock isn’t overpriced.
Alphabet’s trailing 12-month price-to-earnings (P/E) ratio is 23.86x. This number shouldn’t be off-putting to any value-focused investor.
What the P/E ratio indicates is that the GOOG stock price isn’t unreasonable when we consider how much money Alphabet is earning. Yet, we should double-check the data to see if this idea holds up.
In 2020, Alphabet earned $40.27 million in net income. That’s pretty good, considering the financial hardships that the Covid-19 pandemic created that year. Now, check this out. In 2021, Alphabet earned $76.03 million — not quite double 2020’s net income, but fairly close to that.
Alphabet Dives Deep Into Cloud Security
So far, we’ve provided evidence that Alphabet is demonstrating sufficient earnings growth to justify GOOG stock’s share price. Still, there will be some skeptical hold-outs. They might wonder, what exactly is Alphabet doing to grow its business now?
There’s actually a specific answer to that question. Just recently, Alphabet agreed to acquire cyber-defense firm Mandiant (NASDAQ:MNDT). This event should help to push GOOG stock far above $3,000. After all, it’s a sure sign that Alphabet is expanding its business model beyond the Google search engine, and deep into cloud security.
Upon the close of the all-cash acquisition, Mandiant will reportedly join Google Cloud. The value that Mandiant will bring to Alphabet is significant. Consider the services that Mandiant excels in providing: threat detection and response, assistance with strategic readiness and technical assurance, defense testing/validation and more.
Google Cloud CEO Thomas Kurian commented that his company looks forward to “welcoming Mandiant to Google Cloud to further enhance our security operations suite and advisory services, and help customers address their most important security challenges.”
Bottom Line on GOOG Stock
The data clearly indicates that GOOG stock isn’t unreasonably priced at all. This should provide a counterargument to anyone who thinks that all technology stocks are too expensive. At the same time, Alphabet’s acquisition of Mandiant should enhance the company’s already considerable value proposition to the shareholders.
Alphabet isn’t just an internet or search-engine company anymore, as it’s expanding its business model rapidly. Hence, it’s time to let go of our presuppositions about Alphabet, and about the tech sector in general.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions 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.
