Last month Alphabet (GOOG 0.74%) (GOOGL 0.55%) executed a 20-for-1 stock split. In the months leading up to it as well as in the weeks that followed, there has been increased investor discussion about the tech giant. One of the questions being asked is whether Google's parent company is still a good long-term option for investors?
I think it could be a good bet over the long haul -- the technology company is experiencing solid growth from its core business, and its stock is trading at a better price than in the recent past thanks to 2022's tech stock sell-off. Let's take a closer look at why investors should consider buying Alphabet's stock right now.
Image source: Getty Images.
Alphabet's advertising strength
Alphabet's total revenue increased by 13% in the most recent quarter (reported on July 26) to $69.7 billion. And while that was slower than pandemic-induced revenue growth in 2021, the company is still a revenue-generating machine in a fast-growing ad market.
The bulk of Alphabet's sales come from Google's advertising business (which includes Google Search, YouTube ads, and the Google Network). In the second quarter sales from this segment grew by 11.5% year over year to $56.3 billion.
This growth looks even better when you consider that Alphabet has more opportunities to expand in the digital ad market. Some estimates put the global advertising market size at $876 billion in 2026, up from $602 billion this year.
Alphabet is already a leader in the digital advertising space -- it takes the top spot ahead of Meta Platforms, Alibaba, and Amazon in the U.S. -- and as the market continues to expand, Alphabet has the potential to expand right along with it.
Alphabet shares are trading at a discount right now
You may have noticed that the stock market has been a bit volatile lately, and tech stocks, in particular, have suffered. The tech-heavy Nasdaq Composite index is down 19.5% year-to-date, and Alphabet's shares have fallen roughly the same amount.
While that drop isn't great in the short-term, for long-term investors it's providing an opportunity to buy Alphabet's stock at a relative discount. The chart below shows Alphabet's price-to-earnings over the past several years, with Alphabet's most recent P/E ratio much lower than in the recent past.
GOOGL PE Ratio data by YCharts.
When buying a stock, getting it at a relative discount is obviously preferable. With the tech sector down right now and Alphabet's shares down along with it, investors can snatch up Alphabet shares at a discount.
Alphabet has money to weather an economic storm
It's important to point out that if the U.S. economy does enter a significant downtown, investors won't have to worry about Alphabet's ability to push through it.
Alphabet has a highly profitable business that generated $12.6 billion in free cash flow in the most recent quarter, and $65 billion over the trailing 12 months. The company's balance sheet is also in very solid shape, with Alphabet ending the quarter with $125 billion in cash and investments.
While no company is immune to downturns, this cash would allow Alphabet to continue to paying its debts while also being able to invest in its products and services.
Don't forget this is a long-term play
Over the past month or so the tech sector has had a bit of a resurgence, along with Alphabet's stock. And while that's good to see, don't forget that buying shares of Alphabet and holding onto them for at least five years (or more!) is where long-term investing really pays off.
There will likely be some more share price volatility as investors process new economic data and investors continue to process news about inflation and a potential economic slowdown.
But with Alphabet already in a very strong position in the advertising space and the company's shares cheaper than they've been in years, this tech stock looks like it could still be a long-term winner.
