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⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: In last month’s post I stated: “Today at $149.50💵 $GOOG appears to be a strong consideration for investment”

Since then, $GOOG is up +13% ✅ … is $GOOG STILL A BUY? 👇🏽
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Today, analysts anticipate 2024 - 2026 EPS to be:

2024E: $7.64 (31.7% YoY) *FY Dec
2025E: $8.69 (13.8% YoY)
2026E: $10.03 (15.4% YoY)

$GOOG has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $GOOG ends 2026 with $10.03 in EPS & see its CAGR potential assuming different multiples

23x P/E: $229.31💵 … ~15.3% CAGR

22x P/E: $219.34💵 … ~13.0% CAGR

21x P/E: $209.37💵 … ~10.7% CAGR

20x P/E: $199.40💵 … ~8.4% CAGR

As you can see, $GOOG appears to have attractive return potential even if we assume >21 earnings (a multiple well below its 5-year & 10-year mean, albeit with a bit less margin of safety compared to last month)

A 21x multiple for $GOOG is not unreasonable, let alone 22x - 23x (given its growth rate, moat, balance sheet, & exemplary capital allocation)

Today at $169💵 $GOOG still appears to be a good consideration for investment

#stocks #investing $GOOGL"

A sober valuation analysis on $GOOG 🧘🏽‍♂️

•NTM P/E Ratio: 18.63x
•10-Year Mean: 24.56x

•NTM FCF Yield: 4.59%
•10-Year Mean: 4.34%

As you can see, $GOOG appears to be trading below fair value

Going forward, investors can receive ~31% MORE in earnings per share & ~6% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $GOOG is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $100.73B
•Long-Term Debt: $11.88B

$GOOG has a strong balance sheet, an AA+ S&P Credit Rating & 303x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 16.4%
•2020: 16.2%
•2021: 27.6%
•2022: 26.1%
•2023: 28.1%
•LTM: 30.9%

RETURN ON EQUITY✅
•2019: 18.1%
•2020: 19.0%
•2021: 32.1%
•2022: 23.6%
•2023: 27.4%
•LTM: 30.9%

$GOOG has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $55.52B
•2023: $307.39
•CAGR: 18.66%

FREE CASH FLOW✅
•2013: $11.30B
•2023: $69.50B
•CAGR: 19.91%

NORMALIZED EPS✅
•2013: $2.19
•2023: $5.80
•CAGR: 10.22%

SHARE BUYBACKS✅
•2018 Shares Outstanding: 14.07B
•LTM Shares Outstanding: 12.58B

By reducing its shares outstanding ~10.5%, $GOOG increased its EPS by ~11.7% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 57.6%
•LTM Operating Margins: 31.0%
•LTM Net Income Margins: 26.7%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~31% MORE in EPS & ~16% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $GOOG has to grow earnings at a 9.32% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (9.32%) required growth rate:

2024E: $7.63 (31.5% YoY) *FY Dec
2025E: $8.69 (14.0% YoY)
2026E: $9.97 (14.8% YoY)

$GOOG has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $GOOG ends 2026 with $9.97 in EPS & see its CAGR potential assuming different multiples

23x P/E: $229.31💵 … ~20.5% CAGR

22x P/E: $219.34💵 … ~18.3% CAGR

21x P/E: $209.37💵 … ~16.0% CAGR

20x P/E: $199.40💵 … ~13.6% CAGR

19x P/E: $189.43💵 … ~11.2% CAGR

As you can see, $GOOG appears to have attractive return potential EVEN if we assume >19x earnings (a multiple well below its 5-year & 10-year mean)

At >20x earnings, $GOOG CAGR potential is excellent & it’s not unreasonable for the business to even trade for ~23x (given its growth rate, moat, balance sheet, & exemplary capital allocation)

Today at $149.50💵 $GOOG appears to be a strong consideration for investment

#stocks #investing $GOOGL
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