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Alphabet, Inc. Google Stock Shows Strong Earnings Fundamentally Sound

Jun. 14, 2018 11:10 AM ET
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Seeking Alpha Analyst Since 2018

Los Angeles based investor, analyst, and strategist for domestic and international markets.  More than 20 years experience investing in private and public companies both in the US and abroad.  Skilled in technical analysis, financial modeling, portfolio management, rapid analysis, options, fundamental analysis, and trading systems.  Lubaszka studied investment valuation as an undergraduate and participated in the Harvard Business School Executive Education Program.


  • Alphabet, Inc has shown the potential to grow well into 2020 and beyond.
  • Google has a track record that you can count on.  Consider the consistent history of performance eventhough it does not guarantee future results.
  • There is a place for companies like Alphabet and Google in any investors portfolio along with blue chip stocks like Procter & Gamble and Johnson & Johnson.

Did you know that Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has continued to grow in spite of its slow down towards the end of 2017? Some investors may not have noticed the performance in Google stock, as it ended last year by outperforming most blue chip stocks. In December of last year, Alphabet stock leaped to new all-time highs to end the year.

The company has a winning streak that has stood the test of time, although it flew mostly under the radar. GOOGL increased by 33% in 2017.  So far in 2018, Google stock has spent its time rallying with GOOGL shares up 5.5% in the new year.

Credit: Video Provided by Stock Market Investing

Here is what we make of Google stock.

GOOGL stock trades with a reasonable valuation given its earnings and revenue growth.

A Closer Look at GOOGL Stock

At first glance, Google stock appears expensive, trading at about 36 times its trailing earnings. However, its forward price-to-earnings (P/E) ratio is considerably lower, at 26. Analysts expect $41.56 in earnings per share for 2018, up ~29% year-over-year (YoY).

It is difficult to look too far into the future. Because of Alphabet’s consistency, though, it is worth taking a look at 2019 estimates. Analysts forecast earnings per share of $48.64, up 17% YoY. In other words, Alphabet stock trades at just 22.5 times 2019 earnings estimates. Even though there’s a risk that these estimates are too high, it is more likely that they’re too low.

In either case, we have a stock that’s growing earnings in the high-teens to low-20% range for the foreseeable future. Add in the fact that revenue will grow about 22% this year and 20% in 2018 and it’s hard to be bearish on GOOGL stock.

For investors considering buying this stock look at it's cash flow. Operating cash flow (OCF) over the trailing 12 months sits at just over $36 billion. That’s more than one-third higher than where it sat at calendar-year-end 2015. It’s roughly double where it stood four years ago.

Likewise, the company’s trailing free-cash flow hit $27.50 billion, up more than 60% over the past 18 months. The impact of Ruth Porat, who joined Alphabet as CFO in 2015, should not be overlooked.

Google Stock Valuation

One thing that is easy to understand is the blue-chip mantra. Some investors say that buying Procter & Gamble Co (NYSE:PG) or Johnson & Johnson (NYSE:JNJ) is a sound choice.  Some say that buying a company like Alphabet or Facebook are also desirable for different reasons.

They contend that PG, JNJ and others are blue-chip stocks with long histories of dividend payouts and an elite brand name. And Google is considered to have one of the most powerful brands in the entire world.  Additionally, it's forward P/E ratio of 26 and earnings growth of 20% is reasonable. PG’s forward P/E ratio of 20 and earnings growth of 7% is also desirable.

Blue-chip stocks have their place. It’s important to point out other companies — absent a long history of dividends — deserve some premium for their brands too. Google fits that bill, helping to justify its valuation.

Trading Alphabet Stock

As for the stock, we’ve got a relatively clean breakout according to the video. It’s important how it reacts now. In early December, Google stock had the perfect decline down to support, which held steady. After a big move over $1,090 to hit new all-time highs, Google stock is pulling back. While it’s still over this level, it’s unclear whether it will hold now or retreat.

Based on how it looks — because of that upper trend-line resistance — a breakout is looking more and more likely. Make no mistake, though, that’s actually healthy price action. While bullish traders can try to eek out a bit more on the upside, a longer-term swing looks more appropriate.

Aggressive buyers can step in now and add to their position.  More conservative investors can hope for a pullback and begin accumulating Google stock cheaper.

This is a great company and a stock that’s clearly looking to push higher. 

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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