– By GF value
Alphabet’s stock (NAS: GOOGL, 30-year finances) shows all signs of significant overvaluation, according to the GuruFocus value calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 2,393.57 per share and market cap of $ 1,622.9 billion, Alphabet stock is showing all signs of significant overvaluation. The GF value for the alphabet is shown in the table below.
Given that Alphabet is significantly overvalued, its long-term stock return is likely to be much lower than its future business growth, which has averaged 16.5% over the past three years and is expected to grow 15.5%. , 39% per year over the next three to five years.
Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. The alphabet has a cash-to-debt ratio of 4.98, which ranks in the average for companies in the interactive media industry. On this basis, GuruFocus ranks Alphabet’s financial strength as 8 out of 10, which suggests a strong balance sheet. Here is Alphabet’s debt and cash flow over the past few years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. Alphabet has been profitable 10 in the past 10 years. In the past twelve months, the company achieved sales of $ 196.7 billion and earnings of $ 75.12 per share. His the operating margin is 25.26%, which ranks better than 82% of companies in the interactive media industry. Overall, Alphabet’s profitability is ranked 9 out of 10, indicating strong profitability. Here is Alphabet’s sales and net profit over the past few years:
Growth is probably one of the most important factors in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. If a company’s business is growing, the business typically creates value for its shareholders, especially if the growth is profitable. Likewise, if the income and profits of a business decrease, the value of the business will decrease. Alphabet’s 3-year average revenue growth rate is within the average for companies in the interactive media industry. Alphabet’s 3-year average EBITDA growth rate is 20.2%, which is in line with the average for companies in the interactive media industry.
A company’s profitability can also be assessed by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on Invested Capital (ROIC) measures the extent to which a business generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company should pay on average to all of its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely to create value for its shareholders. Over the past 12 months, Alphabet’s ROIC is 25.87 while its WACC is 7.30. Alphabet’s historical ROIC vs WACC comparison is shown below:
In conclusion, the Alphabet stock (NAS: GOOGL, 30-year-old Financials) is believed to be significantly overvalued. The company’s financial position is solid and its profitability is solid. Its growth is in the mid-range of companies in the interactive media industry. To find out more about the Alphabet share, you can view its 30-year financial data here.
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This article first appeared on GuruFocus.