Sign InAlphabet Inc. (GOOGL) Stock Analysis: Strong Q2 Earnings Beat Boosts Outlook
Summary
Alphabet Inc.'s stock (GOOGL) showed a minor increase on July 25, 2023, with stable volatility, strong market capitalization, and positive sentiment driven by AI capabilities and advertising outlook, leading to a recommendation to BUY supported by the stock's performance and earnings beat, but investors should also consider the range of analysts' target prices and challenges in the online ad market. (Analysis date: July 25, 2023)
Overview and Key Data
Alphabet Inc., under the ticker GOOGL, trades on the NASDAQ and had its last closing price at $122.21 on July 25, 2023. On that day, the stock showed a minor increase of 0.56% ($0.68) from the previous day's trading session. The day’s trading range, between a low of $121.02 and a high of $123.145, exhibited relatively stable volatility, keeping in mind the year’s extreme prices seen at $83.34 (low) and $129.04 (high).
GOOGL’s market capitalization stands at an impressive $1.553 trillion, with a total of 12.71 billion shares outstanding. The stock's trading volume on the last trading day was 38.64 million shares, slightly above its average volume of 34.45 million shares.
Based on a Relative Strength Index (RSI14) measurement of 51, Alphabet's stock shows a neutral market momentum. It is currently trading above the 50-day moving average of $121.75 and significantly above the 200-day moving average of $103.43, exhibiting a sustained uptrend. However, the 3-month moving average convergence divergence (MACD) value of -0.51 suggests ongoing bearish sentiments.
Financial Ratios and Earnings
The trailing twelve months (TTM) earnings per share (EPS) for GOOGL stands at $4.4, giving a price-to-earnings (PE) ratio of 27.77, which may be interpreted as the stock being somewhat overvalued when compared to the uderlying earnings.
Alphabet has recently announced its Q2 earnings, outperforming the estimates with a per-share earning of $1.44, compared to the predicted $1.32. This beat lowered the effective PE ratio and boosted after-hours trading, leading to an approximately 8.0% increase in the stock price.
A Discounted Cash Flow (DCF) analysis gives the intrinsic value at $123.87, which is slightly above the current market price. This indicates mild undervaluation. However, there is a wide discrepancy in the predicted target prices ranging from as low as $59 to as high as $190, with a median estimate of $132.
News and Announcements Impact
Positive sentiment around GOOGL is primarily driven by the company’s robust performance in AI capabilities and a boosting advertising outlook, which are offsetting the challenging environment in the online ad market. A strong Q2 earnings report exceeding expectations also added to the bullish sentiment.
Outlook and Recommendation
Given the current and predicted market indicators, the next trading day (July 26, 2023) could see a positive opening owing to the favorable news and earnings beat in after-hours trading. However, the extent of the uptrend could be moderated by the bearish MACD and overvaluation suggested by the PE ratio.
For one week, GOOGL’s market performance will be influenced by the market's digestion of Q2 earnings results and the subsequent direction of investor sentiments.
Added to the resilience shown in the stock's performance, evidenced by it maintaining above the 50 and 200-day moving averages, the secure position of the company in the AI industry and the Q2 earnings beat make Alphabet a compelling candidate for "BUY". This recommendation is supported by the DCF intrinsic value, which suggests a mild undervaluation.
Nevertheless, investors need to consider the broad range of analysts' target prices and the looming challenges in the online ad market before making an investment decision.
