A sober valuation analysis on $GOOG
•NTM P/E Ratio: 22.80x
•5-Year Mean: 23.54x
•5-Year Mean: 23.54x
•NTM FCF Yield: 3.79%
•5-Year Mean: 4.18%
•5-Year Mean: 4.18%
As you can see, $GOOG appears to be trading near fair value
Going forward, investors can receive ~3% MORE in earnings per share & ~9% LESS in FCF per share 🧠***
Before we get into valuation, let’s take a look at why $GOOG is a great business
BALANCE SHEET✅
•Cash & Short-Term Inv: $108.09B
•Long-Term Debt: $11.87B
•Cash & Short-Term Inv: $108.09B
•Long-Term Debt: $11.87B
$GOOG has a strong balance sheet, an AA+ S&P Credit Rating & 332x FFO Interest Coverage
RETURN ON CAPITAL✅
•2019: 16.4%
•2020: 16.2%
•2021: 27.6%
•2022: 26.1%
•2023: 28.1%
•LTM: 30.2%
•2019: 16.4%
•2020: 16.2%
•2021: 27.6%
•2022: 26.1%
•2023: 28.1%
•LTM: 30.2%
RETURN ON EQUITY✅
•2019: 18.1%
•2020: 19.0%
•2021: 32.1%
•2022: 23.6%
•2023: 27.4%
•LTM: 29.8%
•2019: 18.1%
•2020: 19.0%
•2021: 32.1%
•2022: 23.6%
•2023: 27.4%
•LTM: 29.8%
$GOOG has strong return metrics, highlighting the financial efficiency of the business
REVENUES✅
•2013: $55.52B
•2023: $307.39
•CAGR: 18.66%
•2013: $55.52B
•2023: $307.39
•CAGR: 18.66%
FREE CASH FLOW✅
•2013: $11.30B
•2023: $69.50B
•CAGR: 19.91%
•2013: $11.30B
•2023: $69.50B
•CAGR: 19.91%
NORMALIZED EPS✅
•2013: $2.19
•2023: $5.80
•CAGR: 10.22%
•2013: $2.19
•2023: $5.80
•CAGR: 10.22%
SHARE BUYBACKS✅
•2018 Shares Outstanding: 14.07B
•LTM Shares Outstanding: 12.65B
•2018 Shares Outstanding: 14.07B
•LTM Shares Outstanding: 12.65B
By reducing its shares outstanding ~10.0%, $GOOG increased its EPS by ~11.1% (assuming 0 growth)
MARGINS✅
•LTM Gross Margins: 57.3%
•LTM Operating Margins: 30.5%
•LTM Net Income Margins: 25.9%
•LTM Gross Margins: 57.3%
•LTM Operating Margins: 30.5%
•LTM Net Income Margins: 25.9%
***NOW TO VALUATION 🧠
As stated above, investors can expect to receive ~3% MORE in EPS & ~9% LESS in FCF per share
Using Benjamin Graham’s 2G rule of thumb, $GOOG has to grow earnings at an 11.40% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (11.40%) required growth rate:
2024E: $7.54 (30.0% YoY) *FY Dec
2025E: $8.57 (13.6% YoY)
2026E: $9.82 (14.6% YoY)
2025E: $8.57 (13.6% YoY)
2026E: $9.82 (14.6% YoY)
$GOOG has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $GOOG ends 2026 with $9.82 in EPS & see its CAGR potential assuming different multiples
24x P/E: $235.68💵 … ~12.6% CAGR
23x P/E: $225.86💵 … ~10.7% CAGR
22x P/E: $216.04💵 … ~8.8% CAGR
As you can see, $GOOG appears to have attractive return potential if we assume 23x - 24x earnings (a multiple near its 5-year & 10-year mean)
At 24x earnings, $GOOG CAGR potential is excellent & it’s not unreasonable for the business to trade for 24x (given current growth rate estimates, its moat, balance sheet, & exemplary capital allocation)
Today at $176.00💵 $GOOG appears to be an attractive consideration for investment
Those investing today can do well & expect decent returns, albeit without much of a margin of safety
$GOOG presents excellent value & a wide margin of safety closer to $150💵 or ~15% below today’s price
At $150💵, investors can reasonably expect ~13.8% CAGR even assuming 21x earnings
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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