Our Analysis of Alphabet Inc. (NASDAQ: GOOG)

Over the last couple of weeks, we have shared our "Quantamental" analysis of three of the stock market's most popular stocks: Tesla Inc. (NASDAQ: TSLA), NVIDIA Corporation (NASDAQ: NVDA), and Amazon.com, Inc. (NASDAQ: AMZN).

This approach combines "quantitative" analysis, which consists mainly of technical analysis, with "fundamental" analysis of the company's operating metrics.

We developed this approach in our thirty years as professional investors and have simplified our approach to three simple analyses that can cover 90% of the analysis of any individual stock.

We will apply this analysis to one of the most popular stocks each week in HX Daily.

This week, we will discuss another popular stock, Internet search leader Alphabet Inc. (NASDAQ: GOOG) or, as we like to call it – "Google."

Our analysis below is not a formal recommendation on the stock. Based on our analysis, we are giving our views of what will most likely happen from here.

Here is the analysis…

1. Technical Analysis

GOOG shared many elements with AMZN last week.

First, the stock has had a tremendous run through the years. Here is the ten-year chart of the GOOG stock price…

This chart is almost identical to AMZN.

Over the ten years, it has been an awesome stock. It has gone from a low of roughly $23 per share to a recent high of almost $192 earlier this month. That is more than a seven-fold return in the stock.

Like AMZN, it also has had a wild ride. It rallied swiftly during COVID-19 as the entire world moved to buying online.

It was then a significant victim of the post-COVID "hangover" that occurred in 2022. The stock went down almost -40% across that period.

Just like AMZN, after bottoming, though, in December 2022, the stock has been a huge winner. It has doubled and hit a new all-time high a few weeks ago.

There is no doubt that the stock is definitively in an uptrend and showing accumulation.

The stock has sold off dramatically since last week's earnings report. It has been -8% in the last few trading days.

Here is the recent stock price and RSI chart…

The stock recently traded at a 31.5 RSI, which is quite a rare reading for this stock and has only happened fifteen times before.

We back-tested this level of RSI (31.5), and here were the results from the last decade…

The absolute returns are not that big, but the hit rates are impressive. Buying the stock at these levels usually produces positive returns.

This is an ideal time to buy GOOG stock from a purely technical perspective.

TECHNICAL ANALYSIS = BUY.

2. Earnings Revisions

Our readers know the strongest driver of near-term stock price performance is whether companies beat numbers and see positive earnings revisions.

We refer to them as “earnings” revisions, but they can also be revenue revisions. We usually look at not only the most popular measure—earnings Per Share (EPS)—but also other measures, such as Earnings Before Interest, Depreciation, and Amortization (EBITDA).

The EPS revisions are most important for GOOG, and here is the chart of those estimates…

We mentioned the post-COVID "hangover" in the stock price, which you can see in the earnings revisions.

In the middle of 2021, the company was expected to earn almost $8.00 per share for 2024, and those estimates fell to a little bit more than $6.00 a year later. Since then, though, the estimates have recovered nicely, and now they are expected to earn almost the same as they were originally earned.

This has coincided with the recovery of the stock.

It can also be seen in their results versus analyst expectations on their quarterly earnings.

Here is that table…

The company has been beating numbers nicely, including this most recent quarter.

Why did the stock sell off, then?

The company beat on almost every metric, including revenue, cash flow, and EPS. It also posted impressive revenues in its AI-focused Cloud business, including record 40% margins.

The criticisms of the quarter – and why the stock sold off – was that YouTube growth was "only" +13%. This is a deceleration from previous quarters but still impressive growth. Most advertising companies would be ecstatic with this type of growth.

There were also some concerns about the pace of capital expenditures. CEO Sundar Pichai said, "The risk of under-investing is dramatically greater than the risk of over-investing."

The recent stock market sell-off and growing concerns about the return on massive AI spending spook investors.

Our view, though, is that the sell-off was really more about the overall stock market sell-off and the elevated stock levels going into the quarter.

We see nothing wrong and think that the earnings revisions picture for GOOG continues to look great!

EARNINGS REVISIONS = BUY

3. Earnings Growth

The final measure we focus on is the actual growth in earnings.

GOOG has been a great stock over the years, so it is not surprising that it has also seen some great earnings growth. Here is that table…

While AMZN is a highly profitable company now, you may have forgotten that it was not profitable for many years.

Again, you can see how COVID-19 affected the company. EPS doubled in 2020, but the company struggled in the post-COVID period.

Recently, though, they have shown some tremendous growth. If you look at where they were pre-COVID, they are now on track to grow EPS almost five-fold. No wonder the stock has done so well!

This is also quite different from the enormous earnings growth we discussed last week from NVDA.

We believe that AMZN's earnings growth is much more sustainable. They now have a diverse business. We recently saw this table…

Their revenue diversification profile is very similar to AMZN.

A little bit more than half of their revenue comes from their dominant legacy business—search advertising—but the rest is quite diversified.

Some folks are concerned right now about the impact that AI might have on their search business. We are not…

We think GOOG has as much money to spend as any other company on Earth and will not be left behind. They also have a lot more room to grow in their Cloud business than their competitors.

Despite the concerns, we think that GOOG's positive earnings growth profile will likely continue to support the stock.

EARNINGS GROWTH – BUY

Conclusion

We have now done four "Quantamental" analyses of these most popular stocks.

Our first two – TSLA and NVDA – left us cautious. TSLA because of the risk of poor earnings, and NVDA because it was overbought when we wrote our note.

Both of those concerns have played out since we wrote our report.

We saw that last week's stock—AMZN—was a clear buy, and we think it still is today.

It had the most robust growth profile, and it was reasonably oversold.

GOOG is similar but even better. It is at a particularly attractive RSI oversold level right now. The kind of opportunity you have only seen a little more than a dozen times in the last decade.

If you are holding GOOG stock, we encourage you to keep holding it. If you were looking to buy it, now is one of the BEST times in the last few years to buy!

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The HX Podcast with Enrique Abeyta brings you up-to-date financial market commentary along with evergreen insights into investing, trading and building your financial future. Enrique has 30+ years experience as a professional investor having managed billions of dollar in his firms. He brings on other world class investors and special guests to discuss investing and trading in a humorous and approachable manner.