We believe that there are other stocks that are currently better valued than Alphabet (Google)’s stock (NASDAQ: GOOG). GOOG’s current price-to-operating income ratio (P/EBIT) of 30.3x is much higher than levels of 14.3x for Altra Industrial Motion (NASDAQ: AIMC), 7.38x for 1-800-FLOWERS.COM (NASDAQ: FLWS), 5.37x for Quidel (NASDAQ: QDEL) and 5.36x for Nexstar Broadcasting Group (NASDAQ: NXST). These stocks have a lower valuation (P/EBIT) compared to Google, while all of them have seen better revenue and operating income growth. This disconnect between valuation and performance could mean that you are better off buying AIMC, FLWS, QDEL and NXST vs. GOOG stock. More specifically, we arrive at our conclusion by looking at historical trends in revenues, operating income, and P/EBIT for these companies. Our dashboard – Better Bet Than GOOG Stock: Pay Less To Get More From Stocks AIMC, FLWS, QDEL, NXST– has more details – parts of which are summarized below.
1. Revenue Growth
Google’s revenue grew at an average rate of 18% over the last three years, as compared to average revenue growth of 28% for Altra Industrial Motion, 23% for 1-800-FLOWERS.COM, 100% for Quidel, and 24% for Nexstar Broadcasting Group. If we look at the revenue growth over the last twelve month period, Google’s revenue growth of 33% compares favorably with a 7.7% growth of Altra Industrial Motion and 29% of Nexstar Broadcasting Group, but it is much lower compared to average growth of 42% for 1-800-FLOWERS.CO and 180% for Quidel.
2. Operating Income Growth
The three-year average operating income growth for Google stands at 17%, lower than 38% for Altra Industrial Motion, 58% of 1-800-FLOWERS.COM, 409% for Quidel, and 96% of Nexstar Broadcasting Group. If we look at operating margin for the last twelve months Google’s operating margin of 28% is better than Altra Industrial Motion’s 14% and 1-800-FLOWERS.COM’s 7.7%. Meanwhile Quidel and Nexstar Broadcasting Group recorded operating margin of 63% and 25% respectively in the last twelve months.
The Net of It All
As we can see over the last three years, Altra Industrial Motion, 1-800-FLOWERS.COM, Quidel, and Nexstar Broadcasting Group have higher revenue growth and operating income growth compared to Google. Despite better profit and revenue growth in the last three years, these companies have a comparatively lower P/EBIT. Even if we were to look at the last twelve months operating income growth a year ago, Altra Industrial Motion, 1-800-FLOWERS.COM, Quidel, and Nexstar Broadcasting Group fare better compared to Google, and even then Google was trading at a higher multiple.
Google’s persistent underperformance in revenue and operating income growth compared to the other four companies reinforces our conclusion that the stock is expensive compared to them, and we think this gap in valuation will eventually narrow over time to favor the group of more attractively priced names. As such, we believe that Altra Industrial Motion, 1-800-FLOWERS.COM, Quidel, and Nexstar Broadcasting Group are currently better buying opportunities compared to Google.
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