As Alphabet Approaches $100 Per Share, Its Long-Term Value Rises

Alphabet (GOOG) stock has taken a huge hit this past month and trades close to $100, down almost 30% YTD. As of mid-day Sept. 21 it was trading for $101.80 per share. Value investors are now paying close attention as its long-term value is rising.

One reason is that the company is still forecast to be profitable this year and higher next year, recession or not. For example, the average of 12 analysts surveyed by Barchart shows earnings per share (EPS) of $5.21 for 2022. That puts the stock on a price-to-earnings (P/E) multiple below 20x (19.5x).

Moreover, for 2023, these analysts have an average EPS forecast of $5.79 per share, with a high estimate of $6.24. That puts GOOG stock on a forward P/E multiple of 17.6x to 16.3x. 

Fed Hikes, Slower Growth and Ad Spending

The likelihood of the latter earnings prospect probably depends on the Fed stopping its rate hikes by the end of 2023. Today the Fed is set to raise its Fed Funds rate in an effort to dampen growth in the economy.

But those efforts by the Fed, although designed to slow the economy, are not set to put it in a recession. If the US were to hit a major recession, all bets are likely off relating to these projections for Alphabet. 

But if it leads to slower growth, as the market seems to expect, then ad spending at Google may not slow down much. This is because many companies will still have to spend to promote their products, probably even more so during a slowing growth environment.

Where This Leaves Investors in GOOG Stock

GOOG stock has taken a huge hit this year. In the last 6 months alone it is down over 25%.

Investors in GOOG stock, although vulnerable to lower earnings prospects are getting a good bargain here. In the long run, the company is likely to rebound from this slump. 

Moreover, Morningstar reports that the stock has had an average forward P/E multiple of 26x over the past 5 years. This is one-third higher than the price multiple today (19.5x).

This implies that once markets are more ebullient about the stock, the price could move towards an average price target of $135.73, which is 33% higher than today. This is why value investors are now looking very closely at this stock as a potential bargain investment.

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