What happened
Despite solid business performance, Alphabet (GOOG 0.49%)(GOOGL 0.31%) stock has gotten caught up in the bear-market pullback. The company's share price is down roughly 36% since the stock market peaked on Jan. 3 last year, according to data provided by S&P Global Market Intelligence.
Rising interest rates, high levels of inflation, and concerns about the potential for a prolonged economic downturn have broadly caused investors to move out of technology stocks. Alphabet's share price decline is roughly in line with the 31% decline for the Nasdaq Composite index's level since the beginning of last year.
Image source: Getty Images.
So what
The rising interest rate environment has crushed valuations for growth stocks this year, and it's too early to state with a high degree of conviction that the worst is over for Alphabet. With the possibility of a prolonged recession looming, the digital advertising industry is likely to encounter some significant headwinds in the not-too-distant future. This means that Alphabet's core business will likely face significant pressures this year.
On the other hand, Alphabet remains a fantastic business with powerful competitive advantages.
NASDAQ: GOOG
Key Data Points
Alphabet commands dominant positions in the search and digital advertising markets. Its Android mobile operating system also leads the market in terms of overall installed base. Between these strong core offerings and supplementary offerings including its YouTube video platform and suite of online productivity software, the company has a strong stable of core technology service offerings.
Even with significant uncertainty on the horizon, Alphabet stock stands out as a worthwhile buy for long-term investors.
Now what
If macroeconomic pressures continue to shape trading for the broader market, Alphabet could see continued valuation turbulence this year. But it's also possible that the Fed will moderate its policy on interest rate hikes, and the company's share price could see significant gains even if the broader economic backdrop winds up not being particularly favorable.
For the long term, Alphabet continues to look well positioned to score wins in its industry, and there's a good chance that the stock will deliver strong performance for investors who buy at today's levels.
GOOG PE Ratio (Forward) data by YCharts
With the stock trading at roughly 17.5 times expected forward earnings, Alphabet looks cheap on a historical basis, and it has the tools and resources needed to weather near-term pressures and prosper as overall operating conditions become more favorable.
Across its ecosystem of products, Alphabet maintains one of the strongest positions in the technology sector. I think there's a good chance that the company's share price will see some recovery this year. But even if that doesn't wind up being the case, I expect that long-term investors will eventually see the stock bounce back and go on to reach new heights.
