Stock Analysis & Ideas

Alphabet Stock: Stunning Growth, Attractively Priced

Alphabet (GOOGL), the parent company of Google and its several other ventures, is the world’s third highest-valued company, featuring a market cap of $1.81 trillion. Alphabet only ranks behind Apple (AAPL) and Microsoft (MSFT).

Alphabet’s shares have traded relatively flat since last summer, despite the company posting fantastic results during this period. With the company’s top and bottom lines growing at remarkable rates despite its sheer size, I find Alphabet very reasonably valued at its current price levels.

Alphabet boasts a wide moat and excellent financials, while the company has been boosting its capital returns lately. Due to the uncertainty surrounding the global markets these days, I believe that Alphabet makes for a great investment since its robust cash flows offer investors a higher degree of certainty than most growth stocks out there. Hence, I remain bullish on the stock.

Accelerating Growth

It’s quite impressive to see Alphabet’s growth not just being sustained but actually accelerating. The company certainly benefited from the pandemic, which uplifted traffic across its search engine and YouTube.

However, while most investors would expect Alphabet’s performance to slow down following this one-off boost, it appears that the tailwinds formed from the pandemic over the past couple of years have endured to this day. The company’s most recent Q4 results certainly proved that, including record financials.

In Q4, revenues grew 32.4%, extending the top line to a new all-time high of $75.3 billion. Google Services, which accounts for 92.1% of total sales, benefited extensively from fantastic Google Search and YouTube traffic growth. Particularly, Google Search revenues increased 35.7%, while YouTube ad revenues advanced 26.4%.

Despite COVID-19 cases somewhat softening over the past few months, time spent online keeps new, reaching record levels globally. Consequently, the Internet’s largest “landlord” continues to benefit immensely.

Every startup these days is essentially guaranteed to spend a percentage of its raised capital on digital advertising. Therefore, Alphabet is like a toll booth to a significant percentage of all venture capital raised globally. This goes to show just critical the company’s platforms are not just for consumers, but for businesses who continuously strive to grow.

As Alphabet’s revenues continue to grow, its net income margin keeps expanding. In full-year 2021, it hit a new record, reaching 29.5%. This is a significant improvement from last year’s 22%, illustrating the company’s re-accelerating top-line growth.

Accordingly, Alphabet recorded a new all-time high bottom line of $76 billion for the year. Again, a staggering improvement of 88.7% from last year’s already inflated results.

Valuation and Capital Returns

Alphabet’s performance has been explosive over the past several quarters, while the company has shown no signs of slowing down. Analysts expect the company to deliver EPS of around $116 in full-year 2022, which at Alphabet’s current price of $2610, implies a (forward) P/E of around 22.5.

In my view, this is a very inexpensive valuation multiple considering Alphabet’s growth metrics, profound moat (arguably a monopoly in its space), its outstanding margin of safety in the balance sheet (cash and equivalents of $139.6 billion), and growing capital returns.

The company repurchased over $50.2 billion worth of stock during last year, and buybacks should only continue to grow hand in hand with Alphabet’s profitability.

Wall Street’s Take

Turning to Wall Street, Alphabet has a Strong Buy consensus rating, based on 31 Buys assigned in the past three months. At $3,498.71, the average Alphabet price target implies 34.2% upside potential.


Alphabet’s business model is highly scalable, and the company’s ongoing margins expansion following its top line’s growth re-acceleration certainly demonstrated this. In my view, few companies feature Alphabet’s growth, profitability, and capital return metrics while trading at such a cheap forward multiple. For this reason, I remain bullish on the stock.

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