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Is Alphabet (GOOG/GOOGL) next to Blow UP?
Google reports earnings later today, April 26th. Is it the next company to get slaughtered on earnings? The options are dictating a +/- 7% move. If GOOG/GOOGL gets hit another 7% from the current $2,400 level, it will be a decent buying opportunity. Looking at the financials, the company is expected to earn $25 in the quarter and $115 for the year. Its well known that Alphabet spends a ton of money on pie-in-the-sky types of projects like quantum computing and driverless cars, but the cash earnings are around $100 a share. Thus at $2400, the stock is trading around 24x free cash flow, not bad for a solid grower with 30% operating margins. Don't forget the $371 a share in equity, which is mostly liquid.
The stock is down 20% off the highs, so its already in a mini-bear of its own. The stock is ok to own here at $2,400 and it would be a bargain if it traded off below $2,200, so today's action of +/- 7% is not too relevant in the grand scheme. Alphabet is unlike Facebook in that the company is not impaired in the new environment.
The safe way to play it is to buy after it trades down to $2,200 tomorrow, but of course, you risk missing out on a $5,000 stock by splitting hairs now. GOOGL should be a staple of any portfolio. The company is one of the dominant forces in the internet, mobile phones, AI, quantum computing and driverless vehicles. When they spin off Waymo, earnings will go up considerably, and you will be getting a $700 stock in the spinoff. At 12% EPS growth, GOOGL will earn $220 within 7 years, and it will almost surely trade in excess of 15x those earnings. So its going to be hard to lose if you own GOOGL at these levels and hold on for a reasonable amount of time. Stick with GOOGL as it has a vote and is cheaper than the non-voting GOOG.
Tonight could be a bit rocky with both Alphabet and Microsoft reporting, but I believe that the stock will be above $2,400 in 6 months in most scenarios, so today's earnings are not incredibly material.
Thanks for Reading: The Finance Professor