Major Upside Ahead in Google Stock?
At more than $700.00 per share, you might think Alphabet Inc (NASDAQ:GOOG) stock is a bit expensive. But a closer look at the company reveals that Google stock could offer much better value compared to most of its peers in the tech sector.
If there were one tech company whose service you could not live without, which company would it be? For most people, the answer is Alphabet. In large parts of the world, there is no other company that offers a better search engine than Google. Moreover, its e-mail and “Google Docs” service provide a great alternative to offerings from Microsoft Corporation (NASDAQ:MSFT). And don’t forget those YouTube videos you watch everyday. Yep, YouTube is also owned by Google.
The best part is that even at today’s price, Google stock could still represent significant value.
Let me explain…
Trading at $709.28 on Wednesday morning, Google stock had a price-to-earnings multiple of around 29X. While that multiple certainly doesn’t scream “cheap,” it’s much lower compared to many of Google’s peers in the Internet industry.
What investors care more about is not what its current earnings are, but what the company can do in the future. Based on the expected results for 2017, Google stock has a forward price-to-earnings (P/E) multiple of less than 18X. Now that’s special. (Source: “Key Statistics,” Yahoo! Finance, last accessed May 18, 2016.)
Some might wonder, since Google is already so dominant, will it be able to keep growing at an impressive pace? Well, on that front, the company has a special trick.
That special trick is called “network effect.” Basically, the more people there are using a product or service, the better it becomes. For Google’s search engine business, that’s exactly the case. This is because the most widely used search engine also provides the deepest and the most contextualized search results. With the largest market share in the global search engine market, Google’s future success is almost guaranteed.
Of course, stock price movements reflect much more than fundamentals these days, so let’s take a look at the technical side.
Google’s Stock Chart
Chart courtesy of www.StockCharts.com
On the technical side, Google stock appears unstoppable.
Usually, when a stock experiences a big jump, it’s prone to pullbacks. Google stock is no exception. But what it has that most stocks don’t is the ability to find strong support levels immediately after a big upward move.
Google stock experienced a sizable double-digit jump in October of 2013. After closing at $506.19 that week, the stock kept climbing for a few months before eventually coming back down. The main point, though, is that the closing price on that week of the stock’s big jump became a strong level of support. As you can see from the chart above, the stock may have moved downward several times but it never broke below that level in a significant way.
Then there was the massive climb in July 2015, when Google stock gained more than $100.00 a share in a single week. The stock dipped and then climbed back upward after that. Again, the closing price of around $700.00 on the week of that huge jump became a new support level. The bears tried to push the stock downward in the beginning of 2016, but that level of support helped keep Google stock up until this day.
And that’s not all. Throughout Google stock’s impressive journey in the last five years, it has benefited from another level support—its 50-week moving average. The best example would be the massive climb from July 2012 to August 2014. Each time Google stock retraced from its previous jump, it almost always bounced back when it approached its 50-week moving average.
The Bottom Line on Google Stock
The company not only runs an amazing business, but also trades at reasonable valuations. Moreover, its outlook is bright on the technical side.
In a market filled with tech stocks trading at triple-digit P/E multiples, Google stock is a rare find indeed.