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Alphabet Inc. (GOOG, GOOGL) stock is still a buy with most sell-side analysts. This is likely due to its powerful free cash flow (FCF). It could potentially push the value of GOOGL stock to over $220 per share this year.
As of Friday, Jan. 12, GOOGL stock closed at $142.65. So, this means that the potential upside in GOOGL stock is over 55% (i.e., $221.11 - my target price / $142.65 -1). This article will show why GOOGL stock could be worth this price.
Analysts Still Like GOOGL Stock
Moreover, although not as exuberant as I am, most analysts still see the stock as a buy. For example, Refinitiv's survey of 45 analysts, as seen on the Yahoo! Finance page, shows that their average price target is $153.66. That is 7.7% over Friday's price.
However, AnaChart.com, a new sell-side analyst tracking service, shows that the average of 42 analysts' price targets is $165.06. That represents a potential 15.7% upside in GOOGL stock.
In addition, AnaChart reports that out of 207 stock price recommendations on the stock, 95% are still a buy.
Let's look at some reasons why the stock looks so cheap.
Growth at a Reasonable Valuation (GARP)
Alphabet looks like it is a typical Growth at a Reasonable Valuation (GARP) stock. For example, analysts expect to see 11% growth in revenue this year vs. 2023. This is based on Seeking Alpha's survey of 49 analysts who project $340.1 billion in revenue for 2024 vs. $305.73 billion forecast for 2023.
Moreover, earnings per share (EPS) is forecast to be 16% higher at $6.66 in 2024, vs. $5.74 predicted on average for 2023.
That puts GOOGL stock on a fairly cheap 21.4 times forward earnings (i.e., $142.65/$6.66). This is cheap compared to its peers like Microsoft (MSFT) which is trading on a 34x forward multiple.
As I discussed in my last article on GOOGL, Morningstar's calculation of the stock's average forward P/E multiple has been 25.19x.
In other words, GOOGL stock is cheap on a comparative and historical basis.
Free Cash Flow (FCF) Could Push GOOGL Higher
I showed in my last article how Alphabet could potentially generate $111 billion in free cash flow (FCF) this year. That is based on a 32.7% FCF margin for its $340 billion in forecast revenue.
So, if we use a 25x multiple to value this FCF, the market cap could rise to $2,775 billion. That is 55% over its present $1,79 billion market cap.
In other words, GOOGL stock could be worth $221.11 (i.e., 1.55 x $142.65 price today).
So, despite the stock's recent rise, investors in GOOGL stock have a lot to look forward to given this valuation. Alphabet's earnings will be released on Jan. 30. If it shows a powerful free cash flow margin just like last quarter, investors could potentially see GOOGL stock move higher.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
