The Alphabet (NASDAQ: GOOGL) share price is down 20% this year. Nonetheless, it has managed to outperform its index, the Nasdaq. With a number of groundbreaking features implemented to the Google search engine, and a 20-to-1 stock split coming up, the Alphabet share price could be about to rally.
Searching for direction
Alphabet is the market leader in the search engine and advertising field, by way of Google. Even so, it continues to innovate its product and service offerings. CEO Sundar Pichai introduced a multisearch feature at the company’s latest annual general meeting (AGM). The feature gives users the ability to search with images and text simultaneously. Additionally, Alphabet incorporated scene exploration into Google, which gathers insights about multiple objects within images, with local information for search being added as well. For example, this allows users to search for a product in the area.
Not only do these new features generate a much better experience, but it also allows for a better connection to form between users and merchants. As a result, this should improve advertising revenue for Alphabet.
Split coming up
At Alphabet’s latest AGM, shareholders finally approved the 20-to-1 stock split. The split doesn’t change the company’s financial position, but it does encourage an increase in trading volume. This makes the stock more accessible to investors, as its current $2,200 price tag makes the stock look expensive.
A cheaper-looking stock also makes Alphabet more lucrative to institutions and investors. One of these is Warren Buffett, who has made no secret of his regret at not buying Alphabet stock. Perhaps this could be an opportunity for the Oracle of Omaha to purchase a position in one of the world’s biggest companies.
Moreover, the reduced price tag will most probably get the tech stock into the Dow Jones index. This would result in a large volume of institutional buying, thus increasing the Alphabet share price. In the past, stock splits at big companies have often been preceded by rallies leading up to the split. So, if Amazon‘s latest run up to its stock split is anything to go by, Alphabet shares may be in for a rally.
Growth rally
While Alphabet narrowly missed earnings expectations in its Q1 results, this was down to an increase in R&D spend. This was shown in the company’s AGM, as improvements made in Google Maps, Google Assistant, Google Cloud, Google Workspace and other bets were on display. Therefore, I expect these improvements to have a positive impact on usability and future revenue.
With a forward price-to-earnings (P/E) ratio of 20, the Alphabet stock looks extremely lucrative to me. A market leader with healthy growth prospects and a flawless balance sheet are perfect traits I look for in a company whenever I invest.
It’s also worth mentioning that Alphabet has an excellent record of having a high return on capital employed. This gives me plenty of confidence as an investor. As such, with its share price at a 1-year low, I’ll be looking to buy more Alphabet shares for my portfolio.
