Stock Pick of the Week
THIS WEEK’S PICK: Alphabet Inc.
About: Alphabet Inc. is an American multinational technology conglomerate holding company headquartered in Mountain View, California. It was created through a restructuring of Google on October 2, 2015, and became the parent company of Google and several former Google subsidiaries.
Nancy Bambo, Momentum Securities: Analyst, shares her insights.
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Transcription:
Have you ever used a navigation system? One called Waze, perhaps? Have you tracked your fitness on a fitness device? A Fitbit maybe? Or have you searched something on the internet? Have you googled something? Well, our Stock Pick for the Week is indeed quite the conglomerate: it is Alphabet, one of the largest stocks listed on the NASDAQ.
Alphabet owns a range of companies, some of them being the ones that I’ve mentioned, with Google being its biggest business contributing over 90% of group revenue. Most of Google’s revenues are essentially from ad revenue. The beauty in this is that Google has quite the competitive advantage in the sense that it’s created services and platforms that attract a large number of customers, therefore making its platforms a great place for adverts to be shown.
For example, YouTube ads have been shown to reach an audience that TV media doesn’t reach, and at a lower cost point. Coupled with this, Google is able to collect a varied amount and a large amount of data therefore allowing for the adverts to be well-targeted and well-curated.
Looking at the numbers, it’s currently trading at a forward PE of 25 times, which is on par with its average forward PE. In terms of its net income margins, they’ve been pretty stable at about 22% on average, and it’s got a good balance sheet, while able to manage its debt payments with an interest cover of 116 times, and has a net debt to EBITDA, that is in the negative. Looking at the EPS growth, we’re looking at about 13% per annum over the next three years.
So given Google’s advantage in terms of generating ad revenue, as well as the growth prospects, we think Google is attractively priced and is our pick for the week.
