Alphabet (Nasdaq: GOOGL) the new holding company for Google reported after the bell on Tuesday. The company crushed both bottom and top line expectations by beating earnings per share estimates by 58 cents a share on better than a 17% increase in revenues. The stock has even overtaken mighty Apple (Nasdaq: AAPL) to become the biggest public company by market capitalization.
Although its valuation is a bit higher than I usually like to pay for large cap growth stocks, the recent changes the company has made are likely to pay off in long-term capital appreciation for its shareholders. Given the current anemic global environment, this growth play belongs as core holding in any well-diversified portfolio. Below you’ll find my analysis on why Alphabet should be a core holding in every portfolio.
The stock is the cheapest by valuation of all of the so-called FANG stocks at roughly 22 times forward earnings, which is a tad more than the 20 times forward earnings multiple they started 2015 with. However, the company has done several things in 2015 that merit a higher multiple. In addition, if you take out the huge gobs of net cash that sit on Alphabet’s balance sheet, the multiple is really more like 18-19 times forward earnings. This is a slight premium to the overall market which on average does not have this company’s long-term growth prospects.
I expect this be able to deliver earnings and revenue increases in the mid-teens for the foreseeable future. It has all the traits, outside a dividend yield, that one should look for in a true “buy and hold” position.
Main Business:
Let’s start with the fact that Google totally dominates the domestic search market both here, in Europe, and in many other countries and regions. It has roughly two-thirds of online search market both here and in Europe. It has an even higher (>80%) of the mobile search market in both regions, which of course has drawn the ire of European regulators who have grown frustrated by a lack of a Eurocentric “champion” emerging in this space.
Leave A Comment