Like nearly every U.S. equity, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) was under significant pressure due to the novel coronavirus. However, big declines like this present opportunity and with GOOG stock still down 21% from its highs, it’s worth a closer look.
This company has so many positives going for it. While Google may hit some short-term turbulence, investors shouldn’t forget some of its long-term qualities. At its trough, GOOG stock fell 33.8% from its highs.
Who knows, maybe that opportunity will arise once again. We don’t know if that’s the case, but we do know that Google is a long-term winner.
GOOG Stock Has a Strong Balance Sheet
Right off the bat, one of Alphabet’s most attractive qualities is its balance sheet. That may not be the most exciting thing going on at the company, but in times of uncertainty, it provides an enormous level of security.
Think about it. Do you want to saddle up with companies that are on the brink? These companies may not have enough cash on hand to cover their short-term expenses, particularly with cash flows drying up. They may have to raise capital, which dilutes shareholders or increases stress on the balance sheet.
That’s not the case with GOOG stock.
As of the last quarter, Google had $119.7 billion in total cash on its balance sheet. That’s vs. long-term debt of $3.9 billion. Current assets of $152.5 billion are more than triple current liabilities of $45.2 billion.
In short, Alphabet has one of the strongest balance sheets in the public markets. That’s alongside Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and others. I don’t know about you, but when the world is entering a period of peak uncertainty, I want to bet on the stocks with maximum certainty. In this case, “certainty” is money in the bank and Google has plenty of it.
Business Is Booming
Unlike the balance sheet, there are cons to Alphabet’s businesses along with the pros.
On the plus side, its platforms are getting a ton of use as the public is trapped at home under quarantine, lockdown and shelter-in-place orders. They are streaming video on Netflix (NASDAQ:NFLX), Googling like crazy and watching videos on YouTube (another Google property).
That’s the pro; everyone is online right now and Google dominates the internet. The downside is that digital ad spending is down. To an extent, the significant bump in online traffic will help offset some of those losses, but it won’t completely offset the decline in ad revenue.
When companies that advertise online are suddenly hit with a cash-flow decline, marketing budgets take a hit. That means they’re spending less on Google ads, YouTube ads, Facebook ads and any other ads on any other platform. That’s just the way it is.
But once the economy gets back up and running, those ads dollars will come back, and business will get back to booming for Google. As it stands, analysts still expect 11% revenue growth this year, so it’s not a complete contraction year for Alphabet.
However, they do expect earnings to dip about 1% in 2020 vs. 2019. After the stock’s recent bounce, it leaves GOOG stock trading at about 24 times this year’s earnings (and last year’s earnings, really).
The Future for GOOG Stock
Alphabet has a loaded bank account and a revenue driver on the internet. But that won’t stop the company from pushing forward with future technology. It’s leaning on its Pixel smartphone, Android operating system, ChromeCast streaming options and in-home connectivity to drive growth. Perhaps most promising of all though, is its self-driving division with Waymo.
At one point, Waymo was garnering long-term valuations of up to $175 billion. While the technological developments can be slow at times due to the incredible regard towards safety, this future technology will play a big role in transportation and logistics.
It also leaves a lot of questions for investors. Will anyone be able to catch up to Waymo in terms of competition? Should Google consider acquiring a company — perhaps a company like Lyft (NASDAQ:LYFT) — as a platform for its service? How long will it take for autonomous driving to become the norm?
The future holds a lot of questions, but investors can sleep well at night knowing GOOG stock will provide some answers. The latest dip in the stock price is simply an opportunity along the way.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.