Is Google’s P/E Ratio Too High Or Too Low?

by Trefis Team
Alphabet Inc.
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Trefis explores whether Google’s P/E Ratio Makes Sense in a detailed interactive dashboard, and finds that the Internet giant’s current P/E Ratio might present an opportunity compared to the S&P 500. If Google can beat its own expectations of 17% growth, it is likely that Google’s stock will gain, especially versus the S&P 500. Google’s margins have been consistently higher than the S&P, and we discuss more below.

Also, Google’s P/E Ratio looks reasonable compared to Amazon, considering Google’s relatively consistent Revenue Growth and its thicker Net Income Margins.


FY for Google and Amazon ends December, Apple in September, and Microsoft in June.

The P/E ratio shown here for each company is a forward P/E figure calculated by taking:

the average stock price for the last quarter of the company’s reported fiscal year, and
the actual or estimated EPS for the next fiscal year

Google’s P/E ratio at 23.7x, is slightly below the 25.7x multiple it saw in 2015

  • This was likely driven by slower revenue growth the past 2 years and lower margins.
  • Google’s visibly lower Margins in 2017 were due to one-time charges related to the implementation of the U.S. Tax Act. This also impacted the company’s Forward P/E Ratio for 2016.

Google vs. S&P 500: Higher 2020 Revenue Growth For Google Could Present Opportunity

  • Google’s P/E has been slightly higher than the S&P 500, with the metric standing at 23.7x in 2019 versus 20.9x for the S&P.
  • However, Google’s 2x higher margins versus the S&P 500 (20% versus 9.4% in 2019) and significantly higher Revenue Growth rates (19% versus 6%) lend support to a higher multiple.
  • We expect Google’s Revenue growth to decline to 17.7% in 2020, compared to the S&P which could see growth increase to 7.4%.
  • We expect Google’s Net Margins to remain almost flat at about 20% in 2020, while the S&P’s margins could see a 20 bps increase to 9.6%.

Google vs. Apple

  • Compared to Apple , Google’s P/E Ratio is higher (24x versus 16x)
  • This is expected given that Google’s Revenue Growth has been consistently higher (19% versus -2% in 2019) and less volatile than Apple’s, even though margins are roughly comparable.
  • We expect Google’s Revenue growth to decline to 17.7% in 2020, compared to Apple which should grow by 5.7%.
  • We expect Google’s and Apple’s Net Margins to remain almost flat in 2020, coming in at levels of 20% and 21%, respectively.

Google vs. Microsoft

  • Google’s P/E Ratio is roughly comparable to Microsoft’s at about 24x in 2019.
  • Google has a stronger track record of Revenue Growth (19% for Google versus 14% for Microsoft in 2019)
  • However, Microsoft has largely posted thicker Net Margins compared to Google (31% versus 20% in 2019 )
  • We expect Google’s Revenue Growth to slow to under 18% in 2020 while Microsoft’s growth could slow to about 12%.
  • We expect Microsoft’s Net Margins to see a 60 bps decline in 2020, while Google’s margins could decline by over 100 bps.

Google vs. Amazon

  • Google’s P/E Ratio is notably lower than Amazon’s (24x vs. 65x)
  • While Amazon’s Revenue Growth rates have been historically higher than Google’s, it is likely to slow to levels similar to Google’s Growth rate over 2019 (close to 20%)
  • Amazon’s Net Income Margins are also meaningfully lower than Google (4.3% vs. 22.5% in 2018)
  • Based on this, it’s likely Google’s stock will gain with respect to Amazon.

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