Has GOOGL Quietly Become a Value Play?
Here is why we think GOOGL deserves consideration as a value stock.
- Reasonable Growth: 13.1% LTM and 10.0% last 3 year average.
- Cash Generative: Nearly 20.8% free cash flow margin and 32.7% operating margin LTM.
- No Major Shocks: GOOGL has avoided any large revenue collapses.
- Modest Valuation: Despite encouraging fundamentals, GOOGL trades at a PE multiple of 19.3
- Opportunity vs S&P: Compared to S&P, you get lower valuation, higher growth, and better margins
| GOOGL | S&P Median | |
|---|---|---|
| Sector | Communication Services | – |
| Industry | Interactive Media & Services | – |
| PE Ratio | 19.3 | 23.8 |
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| LTM* Revenue Growth | 13.1% | 5.0% |
| 3Y Average Annual Revenue Growth | 10.0% | 5.9% |
| Min Annual Revenue Growth Last 3Y | 5.3% | -0.4% |
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| LTM* Operating Margin | 32.7% | 18.8% |
| 3Y Average Operating Margin | 29.0% | 17.5% |
| LTM* Free Cash Flow Margin | 20.8% | 13.0% |
*LTM: Last Twelve Months
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
Does This Work?
For 65 similar value stocks chosen as of mid 2024, consider the following stats for the subsequent 1 year period.
- Average peak return of 39.3% vs 14.4% for S&P, with maximum peak return of 133%
- Win rate of 60%; win rate represents % of stocks with positive return
- Average 1-year return of 14.6%, similar to S&P’s despite tariff instability
But Consider The Risk
That said, GOOGL isn’t immune to big drops. It fell 65% in the Global Financial Crisis, lost about 44% in the inflation shock, and saw pullbacks near 31% during the Covid pandemic. Even the milder corrections, like 2018, led to a dip of around 23%. Strong fundamentals matter, but when volatility hits, even top stocks take a hit.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.