Is Alphabet Modestly Undervalued?

Alphabet Inc's Earnings Per Share (EPS) stands at 4.72. But is the stock modestly undervalued? This article offers an in-depth valuation analysis to answer that question. Let's delve into the financials and performance of Alphabet.

Google generates 99% of Alphabet's revenue, with more than 85% coming from online ads. Other revenue streams include sales of apps and content on Google Play and YouTube, cloud service fees, and other licensing revenue.

Alphabet also earns from hardware sales such as Chromebooks, the Pixel smartphone, and smart home products, including Nest and Google Home.

The company's moonshot investments are in its other bets segment, where it invests in technology to enhance health (Verily), provide faster internet access (Google Fiber), enable self-driving cars (Waymo), and more.

At its current price, Alphabet's stock appears to be modestly undervalued when compared to its GF Value of USD146.69.

With Alphabet's stock price below the GF Value Line, it appears to be modestly undervalued, implying that the long-term return of its stock is likely to be higher than its business growth.

Alphabet's cash-to-debt ratio of 4.06 ranks worse than 55.11% of 548 companies in the Interactive Media industry. However, the overall financial strength of Alphabet is 9 out of 10, indicating strong financial health.

Alphabet has been profitable over the past 10 years. Its operating margin of 25.75% is better than 85.15% of 586 companies in the Interactive Media industry. Overall, GuruFocus ranks Alphabet's profitability as strong.

The average annual revenue growth of Alphabet is 22.9%, which ranks better than 73.74% of 514 companies in the Interactive Media industry. The 3-year average EBITDA growth is 21.8%, which ranks better than 63.08% of 390 companies in the Interactive Media industry.

Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Alphabet's ROIC is 27.32, and its cost of capital is 11.03.

In conclusion, the stock of Alphabet appears to be modestly undervalued. The company's financial condition is strong and its profitability is robust. Its growth ranks better than 63.08% of the companies in the Interactive Media industry.