A lot of famous tech names have seen their share prices plummet in the past year. Facebook-owner Meta is down 71%, while Amazon has fallen 40%. But the growth stock that has caught my eye is Google-parent Alphabet (NASDAQ: GOOG).
The Alphabet share price has fallen 35% in the past year. I think it is starting to look like a bargain for my portfolio. Here is why.
Alphabet has a great future
Normally when a share price falls, it either means it was overvalued before or else the company’s business prospects have changed.
Arguably Alphabet was overvalued before, although its current price-to-earnings ratio of 19 looks attractive to me. I think its business prospects remain outstanding. One mistake some investors make when looking at Alphabet is to focus on short-term trends. For example, the shares recently fell after the company’s third-quarter results failed to meet Wall Street expectations.
To be clear, they were still strong in many ways. Revenues grew 6% year-on-year and came in at $69bn. Net income fell sharply from the same quarter the prior year but was nonetheless almost $14bn.
As long-term investor, though, what excites me about Alphabet as a growth stock is not its quarterly performance. I like the way it is hardwired into the daily lives of hundreds of millions of users. From Gmail to YouTube, the switching cost for many users makes them loyal to Alphabet’s services. Not only do few if any competitors offer as good a product, many users have so much content on Alphabet sites they are unlikely to jump ship.
Compelling business model
That enormous user base and stickiness helps explain how Alphabet is able to make mammoth profits.
It has been able to monetise that through selling advertising. Its huge digital presence and deep user understanding means Alphabet is a key player in the global advertising market, something I expect to last for many years. There is a risk that a decline in advertising spend could hurt revenues and profits. That already showed up in the recent results and there could be worse to come.
As a long-term investor, though, I think Alphabet has a great business, and I would be happy to own a part of it at the right price.
Is this growth stock attractively priced?
Lately, I have been weighing up the pros and cons of adding Alphabet back into my portfolio at its current price.
I do find the valuation attractive but there are a lot of other quality shares currently trading for what I think are good prices. In the long term, though, I feel upbeat about the prospects for Alphabet and would be happy to own its shares. That is why I see it as a bargain. If I had spare cash to invest right now, I would snap up Alphabet shares for my ISA.
