With an average trading volume of 34.29 million shares over the past three months and 32.66 million shares over the past ten days, tech behemoth Alphabet Inc. (GOOGL) has captured the attention of market participants.
In addition to strong trading activity, GOOGL has demonstrated impressive performance, gaining 40% year-to-date and 16.5% over the past year to close the last trading session at $123.53. Moreover, the stock is currently trading above its 50-day and 200-day moving averages of $114.76 and $101.32, respectively, indicating an uptrend.
Therefore, I think the stock might be an ideal buy this week. Now let's delve into the factors that might impact GOOGL’s short-term performance:
Positive Recent Developments
On June 8, 2023, GOOGL introduced the Secure AI Framework (SAIF), a conceptual framework for secure AI systems.
SAIF provides a comprehensive framework to safeguard AI systems against risks like model theft, data manipulation, unauthorized access to confidential information, and malicious input to enhance overall security.
On May 25, GOOGL launched Search Labs, an experimental program that offers early access to various features, including SGE, Code Tips, and Add to Sheets in the US.
The program introduces a new generative AI-powered Search experience to enhance search efficiency and speed. Users can expect a streamlined process of finding information, gaining quick insights, exploring diverse perspectives, and simplifying task completion.
On May 23, GOOGL’s Waymo and Uber Technologies, Inc. (UBER) announced a new strategic partnership to make Waymo’s autonomous driving technology available to more people through the Uber platform.
In addition, on May 18, GOOGL announced the private preview release of Duet AI for Google Cloud. This advanced AI collaborator operates continuously and is fueled by generative AI technology.
It brings a host of valuable capabilities to the table, including real-time code suggestions, chat assistance, and customizable features specifically tailored to meet the demands of enterprise environments.
Robust Financials
During the first quarter that ended March 31, 2023, GOOGL’s revenues increased 2.6% year-over-year to $69.79 billion. Its Google services revenue rose marginally year-over-year to $61.47 billion, while Google cloud revenue grew 28.1% from the prior-year quarter to $7.45 billion.
In addition, its net income and net income per share of Class A, Class B, and Class C stock amounted to $15.05 billion and $1.23.
Moreover, GOOGL’s cash and cash equivalents at the end of the period amounted to $25.92 billion compared to $20.89 billion in the year-ago quarter.
Solid Historical Growth
Over the past three years, GOOGL’s revenue and EPS have grown at 19.5% and 22% CAGR, respectively. During the same period, the company’s EBIT and EBITDA have soared at CAGRs of 25.9% and 21.9%, respectively.
Optimistic Analyst Estimates
Analysts expect GOOGL’s EPS and revenue to rise 17.6% and 5.9% year-over-year to $5.36 and $299.52 billion in the current fiscal year 2023.
Moreover, GOOGL’s EPS is expected to rise 10.2% year-over-year to $1.33 in the current fiscal quarter ending June 2023. Its revenue is likely to grow 4.2% from the year-ago quarter to $72.62 billion in the same quarter.
Healthy Profitability
GOOGL’s trailing-12-month net income margin of 20.58% is 680.2% higher than the 2.64% industry average. Its 19.63% trailing-12-month levered FCF margin is 167.1% higher than the industry average of 7.35%.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 22.76%, 15.74%, and 15.86% are higher than the industry averages of 3.28%, 3.76%, and 1.43%. Its trailing-12-month cash from operations of $89.90 billion is significantly higher than the industry average of $223.02 million.
Discounted Valuation
In terms of forward non-GAAP P/E, GOOGL is currently trading at 23.03x, which is 12.1% lower than its 26.29x five-year average. Its 1.36 forward non-GAAP PEG multiple is 8.9% lower than its 1.41 five-year average.
Also, the stock’s forward P/S multiple of 5.24 is 7.2% lower than its five-year average of 5.65 and its forward EV/EBIT of 18.72x is 13.4% lower than its five-year average of 21.61.
POWR Ratings Show Promise
GOOGL has an overall rating of B, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GOOGL has a B grade in Quality, consistent with its higher-than-industry profit margins. Moreover, it has a B for Sentiment, in sync with favorable analyst estimates.
GOOGL ranks #11 in the 58-stock Internet industry.
Beyond the POWR Ratings stated above, we have also rated GOOGL for Growth, Value, Stability, and Momentum. Access all GOOGL ratings here.
Bottom Line
With a reputation as a technology powerhouse that thrives on innovation, GOOGL has established itself as a leader in the field of AI, harnessing its extensive resources and pioneering research to redefine the limits of technological possibilities.
The company's recent introduction of innovative initiatives like the Secure AI Framework (SAIF) and Search Labs has further piqued investor interest.
Hence, I think GOOGL might be worth buying this week.
How Does Alphabet Inc. (GOOGL) Stack Up Against Its Peers?
While GOOGL has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its industry peers with A (Strong Buy) and B (Buy) ratings: trivago N.V. (TRVG), Yelp Inc. (YELP), and Travelzoo (TZOO).
What To Do Next?
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GOOGL shares were unchanged in premarket trading Monday. Year-to-date, GOOGL has gained 40.01%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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