Lately, shares in Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have been moving up. After starting the year below $90 apiece, Alphabet stock has been trading at around $105 recently.
That still puts it 18% below where it stood a year ago.
But the long-term story here is strong. The shares have more than doubled in the past five years. So, although Alphabet is trading above $100 again, could buying it now still represent good value for my portfolio?
Great business
I think the answer is yes.
Imagine sitting down with a blank sheet of paper and designing a dream investment. Let me compare mine to what Alphabet offers me.
To start, I would look for a market that has huge demand and is set to keep growing. That is how I see the online space, so Alphabet does well in that regard.
Next, I would look for a business with a sizeable and sustainable competitive advantage. I think Alphabet has this in spades, from a large user base to proprietary technology and strong brands.
Ideally I would choose a business that over time can take a larger share of its customers’ spend. Again, Alphabet should have the ability to do this, with its suite of products becoming more useful as one steps further into the firm’s ecosystem.
Having a strong balance sheet is another factor on my wishlist. Alphabet ended last quarter with net assets of over a quarter of a trillion dollars, even after allowing for all its liabilities.
Valuing the stock
The checklist above describes what I think makes a great company.
But that is not the same as a great investment. To do well, even when buying into a brilliant business, one needs to purchase at a sufficiently attractive price.
Here again, Alphabet looks good to me right now.
The shares trade on a price-to-earnings ratio in the low 20s. That is not cheap, but I think it looks reasonable for a company of this quality. I am a long-term investor with a buy-and-hold approach. So I asked myself a question when deciding to invest in Alphabet over the past few months. Did I feel the long-term business valuation was likely to be markedly higher than the current share price suggests? I think it is, so I bought.
But could I be wrong?
When investing, that is always a possibility. For example, maybe AI is a bigger risk to revenues at Google than I assess. Perhaps the rapidly evolving tech landscape could leave Alphabet behind as happened to other companies in the sector.
On balance, though, I think Alphabet stock is a bargain even now it is trading above $100 again. I have bought it with the intention of holding it for years to come. Hopefully, if my thinking about the company is correct, that timeframe could see the share price move up significantly from today’s level. After doubling in the past five years, I will keep my fingers crossed that it might do the same again in future!
