IS GOOGLE STOCK ON SALE?! Alphabet Valuation In 2022

Is Google Stock On Sale?! Alphabet Valuation In 2022

Throughout 2022, it didn’t seem as though Google (aka Alphabet) was cheap enough until now. Google might be getting close to being on sale, if it isn’t already depending on which metrics you use.

Alphabet is a pretty great company with many products and services we use everyday: Google search, YouTube, and Android-based phones. Since this company is part of our everyday lives, it might be a good idea to see if this business is within our circle of competence and to possibly invest in it.

While none of this is investing advice, I’m just trying to figure out if a stock I really like could be on sale with the valuation calculations I’m sharing in this video. Maybe you’ll find my estimates helpful but they are just attempts at trying to figure out what Google might be worth.

At the time I recorded this video, GOOGL stock was down by about a third compared to its 52 week high. And just because the stock price is down by a third compared to its all time high or year to date doesn’t necessarily mean it’s on sale by this measure alone.

But it’s a clue to start looking into Google’s fundamentals and dig into its 10-K annual reports. Then we evaluate those figures for its financial performance to see if it’s on sale.

As you probably know, GOOGL/GOOG had a stock split on July 15 of 20:1 so if the stock price is $103 a share now, in the earlier part of this year that used to be $2060 a share.

I find it fascinating how many superinvestors own Alphabet in either the voting A shares GOOGL or the non-voting C shares GOOG. Out of Dataroma’s 79 superinvestors, 57% of them or 45 unique investors owned either GOOGL and/or GOOG.

Over the first two quarters of 2022, both Alphabet and Meta (Facebook) were some of the most bought and owned stocks. And among the FAANMG / NAAAMM / MMAAAN stocks, it seems that Meta might be the cheapest and Alphabet is the second cheapest. But I encourage you to do your own valuation calculations and decide if these companies sit well with your ethics and values.

I did my valuation calculations of Google based on Phil Town / Danielle Town’s formulas in their Invested book and Adam Seessel’s Earnings Power method in his book Where The Money Is.

Since the last two years have been weird with people being stuck at home and the economy being dysfunctional, I have to think carefully about what is Google’s normal earnings potential?

With all the monetary and fiscal stimulus we’ve had, interest rates had been low which means companies could borrow cheaply to fund growth initiatives. With rates going higher, companies will likely dial back the spending. And I hear that advertising is slowing down, so how is that also affecting Alphabet’s bread and butter business and advertising revenues?

So I did calculations using both 2021 and 2020 figures from Alphabet’s 10-Ks and I’m guessing that the financial performance Google had in 2020 is more sustainable compared to the supercharged results of 2021. I arrived at a range of potential stock buy prices using Payback Time, 10 Cap / Owner Earnings, Margin of Safety, and Earnings Power valuation methods.

From 2014-2021, Alphabet’s Free Cash Flow (FCF) growth rate averaged about 20% while Net Income growth rate averaged 21%. And for Payback Time using the 2020-2021 figures of FCF and Net Income, the GOOGL stock buy price range I arrived at was between $63 to $119 per share.

When I did the 10 cap calculations, they seemed too low so I don’t think they were a realistic reflection of Google value — especially since this company is still growing fairly aggressively.

When I calculated the Margin of Safety prices for Google, I arrived at the range of $77 to $109 stock buy prices depending on various earnings per share amounts, windage growth rates, and windage price to earnings.

Finally, with Adam Seessel’s method, I determined a 2020 earnings yield of 5.03% and a 2021 earnings yield of 7.14%. Since we would want an earnings yield of 5% or better, Google appears to be on sale using an operating margin of 40% (a comp with Meta) in lieu of the reported ones for 2020 and 2021.

I encourage you to pick up both the Towns’ book and Seessel’s book so you can do your own calculations. Let me know in the comments what you think about Google’s value, I’d love to hear from you.

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.

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