Introduction
Alphabet Inc. (NASDAQ: GOOGL) is currently trading at $154.65 per share, down 5% yesterday and 18% year-to-date. The recent release of Gemini 2.5 Pro, an advanced AI model aimed at improving reasoning, coding, and performance benchmarks, has stirred excitement.
Despite a pullback in stock price, is Google’s stock undervalued? We analyze its latest earnings, financials, and valuation using discounted free cash flow (DCF), comparable company analysis, dividend discount model (DDM), and Ben Graham's intrinsic value model.
Alphabet’s Financial Performance
Key Metrics:
- Market Cap: $1.9 trillion
- Price-to-Earnings (P/E) Ratio: 20.2 (below the market average of 27.8)
- Earnings Per Share (EPS): $7.72
- Beta: 1.03 (similar volatility to the broader market)
- Analyst Price Target: $217 per share
Revenue and Profitability:
Alphabet maintains strong revenue growth, reporting $348 billion in trailing twelve-month revenue, steady growth over previous years.
- Net Income: $100.12 billion, demonstrating robust profitability.
- Free Cash Flow (FCF): $72 billion, with substantial operating cash flow growth.
- CapEx Spending: Increasing, but manageable given Alphabet’s cash reserves.
The company maintains an aggressive share buyback strategy, reinforcing shareholder value.
Dividend Policy:
Alphabet recently introduced a dividend, offering $0.80 per share (4% of net income, 6% of free cash flow).
- Dividend Yield: 0.51%
- Ex-Dividend Date: June 10, 2025
Valuation Analysis
Discounted Free Cash Flow (DCF) Model:
The DCF model assesses Alphabet’s future free cash flows, discounting them to present value.
Inputs:
- Projected Revenue Growth: 5% annually (aligned with analyst estimates of $390-$430 billion revenue in future years).
- Net Income Margins: 27.74% (historical average).
- Discount Rate: 8%
Based on these factors, GOOGL’s intrinsic value is approximately $160 per share, suggesting slight undervaluation.
Ben Graham’s Intrinsic Value Formula:
Ben Graham’s method evaluates earnings growth and bond yields.
- AAA Bond Yield: 5.32%
- Expected Growth Rate: 14.2%
Applying Graham’s model places GOOGL’s intrinsic value at around $143 per share, indicating a neutral valuation.
Comparable Company Model:
Alphabet is compared to industry peers, including:
- Microsoft (MSFT)
- Amazon (AMZN)
- Meta (META)
Key Comparisons:
- Revenue Growth: Alphabet ranks second highest among peers.
- Profit Margins: Alphabet leads with 29% margins, slightly below Microsoft’s 36%.
- EV/EBITDA & Price-to-Book Ratios: Alphabet’s valuation appears lower than competitors, suggesting potential upside.
After factoring in comparisons, GOOGL’s valuation aligns at around $198 per share, reinforcing a buy rating.
Conclusion: Is Alphabet a Buy?
All three valuation models indicate Alphabet remains an attractive buy:
- DCF Model estimates intrinsic value at $160 per share.
- Comparable Company Model suggests $198 per share, reinforcing upside.
- Ben Graham’s Formula offers a neutral valuation of $143 per share.
Despite recent stock declines, Alphabet maintains strong profitability, an increasing free cash flow, and a competitive AI expansion strategy. While volatility persists, its low P/E ratio, robust earnings, and aggressive share buybacks make it an appealing long-term investment.
Final Verdict: Alphabet is a Buy, with considerable upside potential based on fundamental analysis.
https://youtu.be/fEyqRAEPuq8?si=TsR1FcW0fdZAO06S
Introduction
Alphabet Inc. (NASDAQ: GOOGL) is currently trading at $154.65 per share, down 5% yesterday and 18% year-to-date. The recent release of Gemini 2.5 Pro, an advanced AI model aimed at improving reasoning, coding, and performance benchmarks, has stirred excitement.
Despite a pullback in stock price, is Google’s stock undervalued? We analyze its latest earnings, financials, and valuation using discounted free cash flow (DCF), comparable company analysis, dividend discount model (DDM), and Ben Graham's intrinsic value model.
Alphabet’s Financial Performance
Key Metrics:
Revenue and Profitability:
Alphabet maintains strong revenue growth, reporting $348 billion in trailing twelve-month revenue, steady growth over previous years.
The company maintains an aggressive share buyback strategy, reinforcing shareholder value.
Dividend Policy:
Alphabet recently introduced a dividend, offering $0.80 per share (4% of net income, 6% of free cash flow).
Valuation Analysis
Discounted Free Cash Flow (DCF) Model:
The DCF model assesses Alphabet’s future free cash flows, discounting them to present value.
Inputs:
Based on these factors, GOOGL’s intrinsic value is approximately $160 per share, suggesting slight undervaluation.
Ben Graham’s Intrinsic Value Formula:
Ben Graham’s method evaluates earnings growth and bond yields.
Applying Graham’s model places GOOGL’s intrinsic value at around $143 per share, indicating a neutral valuation.
Comparable Company Model:
Alphabet is compared to industry peers, including:
Key Comparisons:
After factoring in comparisons, GOOGL’s valuation aligns at around $198 per share, reinforcing a buy rating.
Conclusion: Is Alphabet a Buy?
All three valuation models indicate Alphabet remains an attractive buy:
Despite recent stock declines, Alphabet maintains strong profitability, an increasing free cash flow, and a competitive AI expansion strategy. While volatility persists, its low P/E ratio, robust earnings, and aggressive share buybacks make it an appealing long-term investment.
Final Verdict: Alphabet is a Buy, with considerable upside potential based on fundamental analysis.
https://youtu.be/fEyqRAEPuq8?si=TsR1FcW0fdZAO06S