Whenever people ask what stock should I buy, or what are people buying during this down turn Google (or Alphabet as their parent company is called now) is always near the top of the list. The main reason being it's a strong growth stock, nice brand name, strong buy backs, and it's trading very cheap.
or is it?
Sure people always bring up it's trading at 20 PE, which in comparison to other big tech with apple and microsoft trading at 25-26 PE and Amazon/Tesla trading at 100, comparatively it is less overvalued.
One thing I don't see people mention often is that google benefited heavily during covid with all the stimulus being thrown out, so the consumer was flushed with cash and it lead to companies increasing their advertising budgets leading to a digital ad boom. However, that seems to be normalizing if not on the decline. Google's revenue growth itself went from high 50% yoy last year to about 10% yoy last quarter (although this is a bit skewed because of easy comps during covid adpocalypse, and now harder comps from the post covid ad boom).
Their net income and EPS are also on their way down, after skyrocketing in 2021-2022
If google's eps suffers a reversion to the mean from tighter ad budgets, tougher competition, increased costs from increasing their workforce the by like 40% since 2019 then their PE could easily jump from 20 to 30 to 40.
The price in PE is just one component, people often forget the E part which is earnings and it's likely earnings revisions to the downside will come. I feel this is somewhat reflected in the stock price already with google being noticeably weaker than other big tech the past couple of months.
submitted by /u/masteryyi
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