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Alphabet: Comprehensive Valuation Update

Mar. 05, 2018 3:27 PM ETAlphabet Inc. (GOOG), GOOGL34 Comments
Oleh Kombaiev profile picture
Oleh Kombaiev


  • Technically, a look at the dynamics of Alphabet shares does not indicate the formation of a bubble.
  • Judging from the multiples, Alphabet is not overvalued.
  • DCF modeling indicates steady growth potential of the company's capitalization, but with reservations.

Investment Thesis

A comprehensive valuation of Alphabet (NASDAQ:NASDAQ:GOOG) (NASDAQ:NASDAQ:GOOGL) indicates the preservation of the long-term growth potential. In the short term, Alphabet is at risk.

To begin with, I’ll say a few words about Alphabet in the context of the technical parameters of the dynamics of its shares.

Distribution of the monthly return on Alphabet’s shares fits within the standard distribution. This indicates the predictability of the long-term results. However, Alphabet’s coefficient of variation is perhaps the highest compared to that of other companies from the FAAMG list. This means that Alphabet’s investors take a relatively high risk with every percent of the average rate of return.

Histogram of Alphabet (NASDAQ:<a href=

Over the past two years, the monthly return on Alphabet’s shares did not extend beyond the lower standard deviation. February's results also fit within these limits:

Alphabet (<a href=The long-term dynamic of Alphabet’s shares is well described by the exponential trend that appears as a straight line on the graph with a logarithmic y-axis. This is sort of a test for the signs of the formation of a bubble.

Now let’s talk about the multiples.

In the Q4, the EPS (ttm) of Alphabet fell by 35.64% YOY due to the one-time tax payment. The company gave the following comment:

The Tax Act was enacted on December 22, 2017 and resulted in additional tax expense of $9.9 billion in the fourth quarter of 2017 primarily due to the one-time transition tax on accumulated foreign subsidiary earnings and deferred tax impacts.

Due to the technical reasons for the decline of Alphabet’s earnings, now we obviously should not pay attention to its multiples based on the current values of the company's earnings. Instead, let’s focus on the EBITDA, P/E (forward) and P/S (forward).

The direct comparison of Alphabet’s multiples with those of its main competitors indicates a clear

ChartGOOGL Operating Margin (TTM) data by YCharts

ChartGOOGL CAPEX To Revenue (TTM) data by YCharts

This article was written by

Oleh Kombaiev profile picture
Individual investor, data and financial analyst. I am interested in investment decisions based on objective methods of modeling and statistical analysis. Besides, I pay much attention to the psychological aspects of decision making.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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