Stock (Symbol) |
Alphabet (GOOGL) |
Stock Price |
$848 |
Sector |
| Technology |
Data is as of |
| February 26, 2017 |
Expected to Report |
| Apr 27 |
Company Description |
 Alphabet Inc is a collection of Companies. Alphabet’s collection include Calico, Google’s health and longevity effort; Nest its connected home business; Fiber, its gigabit internet arm; and its investment divisions such as Google Ventures and Google Capital, and incubator projects, such as Google X. These will be managed separately in Alphabet. On October 2, 2015, Google implemented a holding company reorganization pursuant to the Agreement and Plan of Merger (the Merger Agreement), dated as of October 2, 2015, among Google, Alphabet and Maple Technologies Inc., a Delaware corporation (Merger Sub), which resulted in Alphabet owning all of the outstanding capital stock of Google. Pursuant to the Alphabet Merger, Merger Sub, a direct, wholly owned subsidiary of Alphabet and an indirect, wholly owned subsidiary of Google, merged with and into Google, with Google surviving as a direct, wholly owned subsidiary of Alphabet. Source: Thomson Financial |
Sharek’s Take |
 Alphabet’s (GOOGL) profit estimates got slashed — big time! 2017 estimates from $41.02 to $33.43. 2018’s from $47.91 to $38.99. That’s big. Why? As GOOGL’s CFO put it in the conference call “Starting with our first quarter results for 2017, we will no longer exclude stock-based compensation expense from non-GAAP results.” So what are we left with? Revenue just grew 22% last qtr, so this is still a growth stock. But with lower estimates, the P/E goes up. Last qtr GOOGL was $781 with a 19 P/E, now it’s $848 and the P/E is 25. My Fair Value for this stock continues to be 25x earnings. Now will analysts and investors say “oh Alphabet deserves a higher valuation now?” I don’t think so. The only other tech stock I’m aware of that does this conservative accounting with stock options is Microsoft (and actually, that’s another stock that’s up a bunch since last qtr). I think analysts will compare the stock’s P/E to previous years and think its high. I personally feel the market’s rapid rise recently has pushed these large caps so high they don’t have much upside to their 2017 Fair Values anymore. Look, Alphabet is a solid company that is acceptable to own in both growth and conservative accounts. But I wished GOOGL would earn a 25 P/E and now it has it. I can’t imagine the P/E going to 30 when profit growth is set to go negative. I think this is a good time to take profits and sell some shares. |
One Year Chart |
 Last qtr GOOGL delivered 22% sales growth and 8% profit growth, which missed estimates of 11% growth. Now qtrly profit Estimates stand at -1%, -4%, -8% and 2%. That’s according to Thomson Reuters. 2017 profits are expected to be lower than last year’s too. Still, analysts see this as a 19% grower (Est. LTG) so that’s good. |
Fair Value |
 Last qtr I was asking for a 25 P/E and now we got it lol. I didn’t think the profit estimates would drop like this. Analysts on the earnings conference call didn’t say much about the numbers falling, but it sticks out like a sore thumb on the Profit History table. Maybe this is one instance analysts don’t write too much about it but instead tell their hedge fund buddies on the phone. |
Bottom Line |
 Google will still be a core holding for investors, but I think the stock might base here for a 6-12 months as the P/E hasn’t been this high in around ten years. Yes, this accounting change is better for financials — it’s a sign of an honest company. But the stock market’s recent rise has pushed up a lot of these big stocks and I’m seeing a lot of things now that are Fairly Valued — Alphabet being one of them. GOOGL drops from 8th to 28th in the Growth Portfolio Power Rankings. It will be sold from the Aggressive Growth Portfolio. And in the Conservative Portfolio Power Rankings it falls from 2nd to 19th. I’ll be selling some shares, and holding some for the long-term. |
Power Rankings |
Growth Stock Portfolio
28 of 32Aggressive Growth Portfolio N/AConservative Stock Portfolio 19 of 30 |
