Google Stock Analysis – Why Invest in Google or Perhaps Not

Google Stock Analysis

This is my  Google Stock Analysis (GOOG)Recently Google changed it’s name to Alphabet Inc. While Google is still around, it’s parent company is Alphabet Inc. We have used Google from day 1 and I have been so used to it that it’s gonna take some time to get used to this new name, Alphabet Inc. Anyway, we will refer to Alphabet Inc as Google. 

As usual, I intend to keep simple and straight forward so that any layman can understand why Google might be a good (or bad company) to invest in. Whenever I look at Google stock price, I will always remember what my grandfather said. In his chinese accent, he said that “Cheap things are not good, and good things are not cheap. And free things are the most expensive!” Well, if you have seen Google’s price, it’s certainly a high priced stock. As value investors, we are all for value and we don’t make decisions based on price. So let’s dive deep and see if Google is worth the price.

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Below is my Google Stock Analysis. Enjoy and remember to leave a comment or question. I am always happy to answer or hear from you.

Google Stock Analysis: Business Snapshot

Most of us who are connected to the internet world would have used Google some time before. In fact, other than Facebook, Google is another website that I use everyday because I do search for plenty of information online. While on surface, Google is a search engine but their main source of revenue comes from advertisement. Whenever you search for something, you will see different ads at the top and at the side which is ingenious.

Google Search Ads

While I am sure Google is involved in other investments and enterprise offering, their main source of revenue comes from advertisements. And while the Stock Market might classify Google as a Technology company, I feel the right classification for Google is a Media company. Something similar to a newspaper but on a much larger scale… a global library of information. If you want more information on Google, you can visit Google official website.

Google Stock Analysis: Financial Snapshot

Let’s take a look what’s important in Google accounting statement. We are going to just dived straight into what’s important and forget about the noises, as always…. Bear in mind, ideally, we want to be invested in companies with a 10 year proven track record.

Google Stock Analysis: Growing EPS but with bearable inconsistency

Google Stock Analysis: Earnings Per Share Chart
Google Stock Analysis: Earnings Per Share Chart

A quick glance at the chart and without looking at further numbers, you know you are looking at an incredible company that is flying high and the sky is not the limit. This chart contains error because Google EPS did not dive in 2015. In fact, Google Trailing 12 months EPS is at $23 per share and I expect this EPS continues to grow as Google continues to dominant the search market. With their closest rival, BING, still so far behind, I don’t see anything stopping Google anytime soon.

Google Stock Analysis: Debt is not in Google’s Dictionary

Google Stock Analysis: Debt Equity Ratio Chart
Google Stock Analysis: Debt/Equity Chart

Google is running with almost no debt. Their latest D/E ratio is at 0.02 which is incredibly low for a company with such large revenue. This is further confirmation that Google is a stock that deserves a place in our portfolio.

Google Stock Analysis: Inconsistent but again bearable ROE%

Google Stock Analysis: Return On Equity Chart
Google Stock Analysis: Return on Equity Chart

Google ROE is at 14% which honestly comes at a shocker for me. It’s actually good as compared to a typical company in any stock exchange but Google is not an ordinary company. I expected much higher ROE but it’s at 14% which is above average but certainly not out of this world. Google passed this test but not on flying colors as I expected them to.

Google Stock Analysis: A Cash Printing Machine

Google Stock Analysis: Operating Cashflow Chart
Google Stock Analysis: Operating Cash Flow Chart

While I was kinda disappointed that Google ROE was below my expectation, it’s operating cash flow chart certainly made up for it. Ever growing revenue with no debt and above average ROE has already cemented Google’s place in our watch list but now looking at their operating cashflow chart, Google has provided us all the confidence that this is a stock I will be watching for a long long time. Google is a cash printing machine. I cannot help but rave about Google as an investment vehicle despite its ridiculously high price. However, remember this… high price does not mean expensive. It might be still undervalued. Let’s calculate the value…

Google Stock Analysis: Our Chance to Invest into Education Stocks has arrived!

Excellent and consistent EPS growth. Extremely low D/E ratio. Dominant market and in a growing marketplace. Above average ROE and incredible grow in operating cashflow. This is like a dream business to own. The only thing left to answer is at what price is it good to enter into position for Google. Our answer below…

Google Stock Analysis: Best Price to Enter Google

At the point of this writing, Google is priced at a whooping $720. It’s lower than my valuation but bear in mind my valuation is a conservative valuation of what I think the right price to enter. Google is a darling of Wall Street for many years now. It’s a solid business but I think it’s just a little too high now to get involved. Perhaps it’s wiser to just stay at the sideline for now and wait for the right time. If you decide to jump into it, it does not mean you are not going to be profitable. It just means the risk is a lot higher at this price. If you have any questions or comments, I welcome it.

Good luck!

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