Sign InAlphabet Inc.'s Mega-Cap Status and Undervalued Stock Price Point to Hold Rating
Summary
Alphabet Inc. (NASDAQ:GOOG) is a mega-cap company trading at a premium with an elevated P/E ratio, but potential job cuts and concerns about long-term growth have led to cautious recommendations for investors to closely monitor its future developments before buying or selling the stock.
Fundamental Analysis
Alphabet Inc. (NASDAQ:GOOG), as of June 27, 2023, has a market cap of approximately $1.51 trillion, which suggests that it is a mega-cap company. With an EPS of 4.56 combined with a relatively high P/E ratio of 26.1, this demonstrates the company is trading at a premium compared to the industry. This elevated P/E ratio could be attributed to investors' expectations of significant future earnings growth.
Furthermore, rumors about Alphabet's job cuts in its mapping app Waze signal the company's intent to streamline its map products. However, Bernstein marked a possible downgrade due to concerns about Google's long-term growth, stating that any uncertainty in search results could hinder Alphabet's future growth. These recent downgrades and concerns about tech valuations should be considered by investors.
The company is scheduled to announce its earnings on July 24, 2023, and it will be advised to monitor the company's earnings health and outlook, which will provide a clearer picture of its future business performance.
Technical Analysis
Alphabet's latest closing price bounced a bit from its 50-day moving average of $116.91 but still sits relatively near it, indicating a slightly bullish short-term trend. However, the stock's 200-day moving average of $102.22 could suggest a bullish long-term trend.
The RSI14 stands at 28, which is nearing oversold territory. This could suggest that the stock might be undervalued, and there may be a bounce-back in the near future. Moreover, the MACD, a momentum oscillator, for the last three months is 0.62, hinting towards a slight bullish momentum.
The discounted cash flow (DCF) is $120.67, which is higher than the current stock price. This may indicate that the stock is currently undervalued and has potential for price appreciation.
Stock Price Prediction
With the technical indicators and fundamental factors taken into account, on June 28, 2023, the stock price will likely correct itself slightly above the $119.01 mark. With potential job cuts, consolidation of mapping services, and the upcoming earnings announcement, the stock price might see short-term volatility for the upcoming week.
Target Estimates
Analysts' estimates place the target high for GOOG at $312, the target low at $115, and the median at $145. The consensus estimates an average target of $148.12. The substantial divergence between the low and high end depicts a divided opinion among brokers, indicating uncertainty around Alphabet's future performance.
Conclusion
Considering Alphabet’s potential long-term growth, high P/E ratio, concerns surrounding the job cuts, and technical indicators that suggest the stock may be undervalued, the stock can be considered as a 'Hold'. This assessment comes with a caution for investors to closely monitor the company's future developments and updates from the earnings announcement on July 24, 2023. It may not be the right time to sell, given the stock's potential undervaluation, but it might not be the optimal time to buy either. As with any investment, risks such as market volatility and other external factors should be extensively considered.
