- Alphabet (GOOGL, GOOG) stock continues to generate strong earnings and revenue growth.
- Unrivaled assets in Google and YouTube and strong balance sheet.
- The company is doing a 20-for-1 stock split later this year, on July 15.
Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) has been one of the best-performing FAANG holdings over the past year. In that span, GOOG stock is up almost 36%. And since the beginning of 2021, shares are up 59% — almost double the next-best performer in the group.
Moreover, Apple (NASDAQ:AAPL) has come on strong lately too. In fact, over the past year, it’s up 42%. Outside of these two names, though, no other name in the FAANG group is performing better this year.
So, the point here is pretty simple: Alphabet has been a dominant holding over the past 12 to 15 months and bulls are looking for that run to continue. But now they have to navigate the stock split. How will they handle this move? Let’s take a closer look to find out.
| GOOGL, GOOG | Alphabet | $2,785.65, $2,792.68 |
Breaking Down Alphabet
Hands down, Alphabet is one of the best companies in the market. That’s true for three simple reasons: Assets, balance sheet and growth.
Expanding on those, you’ll quickly see how all three intertwine. Alphabet owns the two most popular websites in the world: Google.com and YouTube.com.
Even with Alphabet commanding a $1.88 trillion market capitalization, these two assets continue to deliver sizable growth. Last quarter alone, Alphabet reported 32% year-over-year (YOY) revenue growth. That’s incredibly impressive for its size.
Moving forward, analysts expect a very respectable 16.6% growth rate this year. That’s followed by 15.6% growth in 2023 and mid-teen percentage growth in 2024 and 2025. Earnings are similar, with estimates calling for 18% growth this year and more than 17% growth in 2023.
So not only are these two assets — Google and YouTube — like owning Boardwalk and Park Place in the board game Monopoly; Their growth has helped build an impenetrable balance sheet.
As of its latest quarter, Alphabet has $188 billion in current assets, almost $140 billion of which are in cash and short-term securities. The company also carries $14.8 billion in long-term debt, or a quarter of that when we exclude capitalized leases.
Furthermore, during the quarter, Alphabet generated $18.5 billion in free cash flow (FCF) — good for a 7.6% YOY increase.
When Is Alphabet’s Stock Split?
Alphabet will split its stock on July 15, doing a 20-for-1 split. Since the announcement, we’ve since seen Amazon (NASDAQ:AMZN) announce a split — also a 20-for-1 split — and now Tesla (NASDAQ:TSLA) has filed for a shareholder vote on another split. Additionally, this is Alphabet’s first stock split since 2014.
Overall, whenever a company does a split, and particularly when it’s a highly followed stock such as a FAANG firm, it brings out all sorts of crowds. The raging bulls will cheer the excellent move. The “Negative Nellies” will pound the table on how this does nothing to alter the value of the company.
Nonetheless, changing the share count — and thus, the stock price — does nothing for the business. Alphabet’s business will remain exactly the same. However, it’s hard to argue that stock splits don’t positively impact the stock price.
Let’s face it: Investors like when they can scoop up scores of stock. They like that they can buy 100 shares of something instead of 5. On a smaller scale, investors like buying 1 or 2 shares at a time vs. 0.05 or 0.1 shares.
Of course, while the latter can seem discouraging, fractional shares are still ownership. And thanks to many brokerages out there now, investors can scoop up fractional shares with no commission. That said, given the high-quality nature of GOOG stock, I think that’s exactly what long-term investors should do.
Trading GOOG Stock
Click to Enlarge
As we mentioned at the top, GOOG stock has been one of the best-performing FAANG holdings. Of course, I would like to see that continue going forward, and given the quality of its business, it would not be a surprise.
From here, I would love to see shares stay above the 50-day and 200-day moving averages.
If GOOG stock can do that, $3,000 remains in play. Otherwise, a break of these key moving averages could put $2,500 back in play, an area I would consider buying the dip.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
