The stock price of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has slid over 34% year to date. The company’s shares have suffered alongside other tech giants like Apple, Microsoft, and Amazon.
However, I think Alphabet could be a better buy for my portfolio compared to those companies.
It’s all in the numbers
Alphabet has had massive revenue growth since 2018. Its revenue from 2021 was up 41% to $257bn, which is close to double its 2018 revenue of $136bn.
The company’s net profit has grown by more than double in that time, from $30bn in 2018 to $76bn in 2021.
That means, with the recent share price drop, Alphabet now has a price-to-earnings (P/E) ratio of 19. Compared to other tech companies, Alphabet appears to be relatively undervalued. Apple’s P/E is 23, Microsoft’s is 27, and Amazon’s is an eye-watering 85.
To me, that makes Alphabet one of the better buys of the top US tech companies. There are risks: revenue and profit could fall if economic conditions cause advertising spending to drop. However, I don’t see the value of Alphabet getting much better than it is right now.
I think the share-price drop of Alphabet over the last year has been excessive compared to some of its peers. When considering the numbers alone, Alphabet shares look to me to be on sale.
Playing the long game
If I do buy some shares of Alphabet, it wouldn’t be a one-off investment. The company currently has a 12-month target price average of $126.
I would want to invest regular amounts into Alphabet to increase my holding. If the price goes down due to the larger economic climate affecting revenue, then I will buy more to bring my average purchase price down.
However, if the target price is accurate, I would be happy to invest a regular amount in Alphabet stock on a monthly basis.
I’m comfortable with the risk that Alphabet shares could be unstable if the economic outlook worsens. The share price hasn’t been this low since January 2021, and I see a lot of upwards potential for the company.
If global advertising spending does drop, Alphabet is strong enough to weather the storm. It has strong revenue streams from other areas and over $116bn of cash on hand. It would take a truly monumental drop in advertising spending to really damage Alphabet’s bottom line.
However, I’m not too worried about the next couple of years for Alphabet because I wouldn’t be selling my shares.
Ideally, I would like to hold shares in Alphabet until my retirement. I see it as a growth stock with nearly unlimited potential to grow as advertising increasingly moves online.
Heading into the new year, if I have spare cash to invest, I’ll be sending a portion of it toward Alphabet shares.
