This Could Be Huge for Google Stock
Alphabet Inc (NASDAQ:GOOG) stock bears often complain about the company’s high stock price, but the truth is that Google stock is not that expensive. Given what the company is doing right now and what it could do next, the stock might actually be a bargain.
Allow me to explain…
First, Alphabet’s core business is doing tremendously well. In the first quarter of 2016, Google segment’s revenue totaled $20.1 billion, up 17% year-over-year. The segment also improved its operating income by 20.9% year-over-year to $6.3 billion. (Source: “Alphabet Announces First Quarter 2016 Results,” Alphabet Inc, April 21, 2016.)
The best part is that despite all its potential, Google stock is not really that expensive. Trading at $728.28 per share, the search engine giant carries a price-to-earnings (P/E) multiple of 29.63X, which isn’t that high in today’s bloated Internet industry. Also, if you use next year’s earnings, you’d see that Google stock has a forward P/E of just 18.37X.
However, what investors really care about is what the company can do in the future. On that front, there is an exciting project within Alphabet’s “Other Bets” segment that could become huge in the near future—driverless cars.
It is estimated that more than 90% of road accidents are caused by human error. If we were to improve the world of transportation, autonomous cars would be the future.
As difficult as it is to actually build something that’s smart enough to drive itself, Google’s autonomous cars aren’t that far off. Over the past seven years, Google’s driverless cars have driven more than 1.6 million miles in four different cities.
The neat thing is that Google is not really building a car from the ground up (although it has developed its own robotic cars). For the greater part of its testing process, Google has used a number of different cars equipped with its self-driving equipment, including the Toyota “Prius,” Audi “TT,” and Lexus “RX450h.”
What this means is that Google is still a technology company in the driverless car industry, but not an automaker. As we have just seen with Tesla Motors Inc (NASDAQ:TSLA), it takes some hefty investments to build cars in-house. Because Google is developing the technology needed to make cars drive themselves, it could just license out its technology rather than building an assembly line.
Also, while some companies might keep their driverless car project a secret, Google has decided to give the public a monthly update on how its development is going. In May, Google just taught its autonomous cars when and how to honk at other drivers. (Source: “Google Self-Driving Car Project Monthly Report,” Alphabet Inc, May 2016.)
And according to Eric Schmidt, the executive chairman of Alphabet, the legal process could move along faster than you think.
At the company’s annual shareholder meeting, Schmidt said, “the consensus within the company is that it’s some years [away], not decades.” (Source: “Here’s What Alphabet Did—and Didn’t—Say at Its Annual Shareholder Meeting,” The Street, June 8, 2016.)
As for the other particulars, if you are wondering how on Earth you can get insurance for a driverless car, a company in the U.K. just provided the first answer.
Car insurance company Adrian Flux now offers a policy designed for consumers who already have or are thinking of buying cars with driverless features, such as self-parking and autopilot. (Source: “Insurer Launches UK’s First Driverless Car Policy,” The Guardian, June 7, 2016.)
“We understand this driverless policy to be the first of its kind in the UK—and possibly the world,” said Gerry Bucke, general manager of Adrian Flux. “More than half of new cars sold last year featured autonomous safety technology, such as self-parking or ABS [anti-lock braking systems], which effectively either take control or take decisions on behalf of the driver. And it’s only going to continue. Driverless technology will become increasingly common in our cars over the next few years.” (Source: Ibid.)
The Bottom Line on Google Stock
Of course, Google is not the only company trying to develop driverless cars. Many automakers and tech giants are also in the race. But with more than 1.6 million testing miles, Google might be able to take the lead. And that’s a good thing to know for Google stock investors.