Despite a 50% rise over the past year, Alphabet (NASDAQ:GOOGL;NASDAQ:GOOG) stock remains undervalued in the eyes of many investors.
Its forward price-earnings ratio around 23-times is very reasonable for a company with this kind of growth. This relative valuation discount, compared to historical levels and other AI giants like Microsoft (NASDAQ:MSFT), has persisted despite strong first-quarter results.
The company also holds significant share in the global online advertising sector, capturing about 90% of global search traffic through its Google search engine. Google’s platform is vital for advertisers, driving substantial revenue.
The company’s Q1 results showed strong performance on both the top- and bottom-lines, with the company establishing its first ever quarterly dividend of 20 cents per share.
With Alphabet now a dividend stock, many are expecting to see a whole new set of investors pile into this name.
Here are a few factors I think may help these investors along in their decision to pick Alphabet over other Magnificent 7 peers.
GOOG Stock and Banner Q1 Results
As mentioned, Alphabet reported very strong earnings in its most recent quarter, seeing its shares rise more than 36% tied to the report.
The company exceeded analyst forecasts on the top- and bottom-lines, with revenue surging 15% higher year-over-year and operating income growing by a whopping 46%.
These results were driven by an acceleration of growth in the company’s key Search, YouTube Ads, and Google Cloud segments.
Importantly, Alphabet also announced the company achieved its highest operating margin since 2021. Management highlighted infrastructure advantages in generative AI, including 5th generation TPUs and high-performance data center architecture, indicating significant progress.
With a forward net price-earnings multiple of 21-times earnings, and more than $100 billion in cash reserves, GOOG stock remains poised for future capital appreciation upside.
Best Growth Stock for Future Retirees
Earnings growth is crucial for investors, particularly those seeking double-digit total returns over time. While Alphabet’s historical earrings per share growth rate comes in at 23.4%, its projected growth this year is 32.6%, surpassing the industry average of 26.7%.
While cash is vital, above-average cash flow growth is especially crucial for growth-oriented firms, facilitating expansion without costly external financing. Currently, Alphabet’s year-over-year cash flow growth stands at a very respectable 16.7%, outperforming many of its peers, as well as the industry averages.
Considering both current and historical rates, Alphabet demonstrates consistent growth, with an expected annualized three to five year growth rate of roughly 15% moving forward.
Any company that can grow by 15% per year can double roughly every five years, so that’s a decent base case scenario to put forward for where investors can expect to see GOOG stock moving forward.
Buy GOOG Stock Now
Apart from mentioned metrics, investors should note earnings estimate revision trends, which strongly correlate with short-term stock price movements. With upward revisions in current-year earnings estimates for Alphabet, buying and holding GOOG stock appears to likely be a favorable decision for those with a truly long-term investing time horizon.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.