Big tech and other growth companies have suffered lately owing to a string of future interest rate hikes and uneasiness surrounding Russia and Ukraine. Consequently, some of the world's prominent companies are lagging behind the S&P 500 in recent times. One those companies, Alphabet (GOOGL 1.42%) (GOOG 1.43%), has seen its share price decline nearly 15% since the start of the year. The subpar share performance is startling considering the company's superb outing in its final quarter to close out 2021.
In a market swarming with uncertainty today, Alphabet offers investors the perfect mix of stability and growth. Despite its mammoth size, the world's premier search engine continues to expand its business and deliver exceptional numbers. If you're in quest of a reliable stock to add to your long-term portfolio today, I advise resorting to Alphabet.
Image source: Getty Images.
A never-ending success story
Alphabet continues to dazzle on the financial front. In its final quarter, the tech titan reported revenues and earnings of $75.30 billion and $30.69/share, beating Wall Street estimates by 5% and 13%, respectively. Full-year 2021 sales and net profits increased 41% and 91% from a year ago, up to $257.60 billion and $112.20/share. The strong numbers were driven by the company's advertising business and Google Cloud segment, which grew 36% and 45% year over year, respectively. With $20.90 billion in cash and equivalents, Alphabet has more money than it knows what to do with. The cash keeps piling in, too -- the company increased free cash flow by 56% in 2021, equal to $67 billion.
Alphabet just might be the poster child, financially speaking. The company's top- and bottom-line growth both take the crown against its FAANG peers. For those who don't know, FAANG is an acronym that refers to the stocks of five massive American technology companies: Meta Platforms (META 0.14%), Amazon (AMZN 1.49%), Apple (AAPL 0.51%), Netflix (NFLX -0.08%), and of course, Alphabet. Alphabet's 41% and 91% sales and earnings growth year over year tower over the FAANG median of 29% and 63%, respectively.
| Company | Sales Growth (YOY) | Diluted EPS Growth (YOY) |
|---|---|---|
|
Alphabet |
41% | 91% |
| Meta Platforms | 37% | 36% |
| Amazon | 22% | 55% |
| Apple | 29% | 63% |
| Netflix | 19% | 85% |
Data sources: Alphabet, Meta Platforms, Amazon, Apple, and Netflix. YOY = year over year.
Investors should brace themselves for another strong year in 2022 as well. Wall Street analysts are modeling Alphabet's top line to eclipse $303.5 billion, translating to 18% growth year over year. On the earnings front, EPS (earnings per share) is forecasted to expand by only 3% in 2022, up to $115.89/share. Alphabet's ability to sustain such incredible growth at its colossal size is unprecedented -- investors should feel quite lucky that the stock is trading at an inexpensive valuation today.
Historically low valuation
Alphabet is currently trading at 22 times earnings, well below its five-year average price-to-earnings multiple of 32. And despite its superior growth to its FAANG competitors, Alphabet is trading at a discount to all of them except Meta Platforms and Netflix. Note that Netflix's price-to-earnings multiple was higher prior its recent crash on Wednesday, April 20.
GOOG PE Ratio data by YCharts
Prior to Netflix's collapse, the average price-to-earnings multiple among the FAANG companies was 29, meaning Alphabet was trading at a 25% discount to its peers. Now, the average price-to-earnings multiple of the FAANG group is 26, still over 15% higher than Alphabet. This should draw the attention of shrewd investors. Typically, the market requires us to pay a loftier price for higher-growth companies. But in Alphabet's case, we're being offered the best growth at one of the cheapest prices, making this a simple decision for investors.
Say yes to Alphabet today
There's a pretty convincing case for adding Alphabet to your portfolio today. We are seldom gifted an opportunity to acquire one of the world's most successful companies at a discounted price. And not only is Alphabet inexpensive, it's cheaper than its peers despite experiencing superior growth. Investors should exploit the market's irrationality today by purchasing shares of the tech juggernaut.
