Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) shares took a tumble during Tuesday’s after-hours session in reaction to the company’s third-quarter results.
What Happened: Future Fund’s Gary Black said in a tweet that Alphabet offers fairly predictable 12% annual revenue growth, which translates to 15% earnings growth.
Weighed down by the ad spending growth, Alphabet’s stock currently trades at just 15.3 times the adjusted earnings per share estimate for 2023, Black said.
Alphabet’s lowest P/E over the past decade was 14.1 times in 2013, the analyst noted. Over the past 10 years, its one-year forward average P/E was 22 times, added Black.
See Also: YouTube, Google Search Hit By Ad Pullbacks In Q3 — CFO Sees 'Larger Headwinds' From Strong Dollar Ahead
Applying the same P/E to the estimated EPS of $6.30 for 2023 would give the Alphabet stock a valuation of $140 per share, Black said.
This represents 44% upside from the $97.60 level at which the stock was trading in the after-hours, he added.
Black noted that Apple Inc. (NASDAQ:AAPL) traded at 23.6 times the estimated EPS for 2023, with 5% revenue growth and 8% EPS growth.
2/ $GOOG lowest P/E over the past decade was 14.1x in 2013. Over the past 10 yrs GOOG 1-Yr forward avg P/E was 22x. At 22x 2023 EPS of $6.30, GOOG should be $140 +44% above where its level AH. $AAPL by comparison, trades at a 23.6x 2023 P/E, with 5% Rev growth and 8% EPS growth. pic.twitter.com/KPSBntvHWO
— Gary Black (@garyblack00) October 26, 2022
Benzinga’s Take: Black may not be way off when he says Alphabet should command a better multiple. The company now has many vital cogs on its wheels.
The Cloud business is well and thriving. On the earnings call, CEO Sundar Pichai touted AI as the next growth driver for the company over the next decade. Better monetization of YouTube Shorts could add to revenue, given the user numbers have swelled in the recent quarter.
That said, comparing Apple’s multiple to Alphabet’s may not be that accurate, given the different dynamics involved in their businesses. Apple has a sticky ecosystem that helps it retain and grow users irrespective of economic conditions.
Price Action: Alphabet’s Class A shares rose 1.91% to $104.48 on Tuesday but gave back 6.58% in the after-hours before settling at $97.60, according to Benzinga Pro data.
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