Alphabet Stock Still a Strong Buy as FCF Points to Potential Upside

Alphabet Stock

Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) continues to garner favor among most sell-side analysts, and its robust free cash flow (FCF) is cited as a key factor that could drive the value of GOOGL stock to surpass $220 per share in the coming year.

As of January 12, GOOGL stock closed at $142.65, and the potential upside is estimated to be over 55%, reaching $221.11. This analysis delves into the reasons supporting the belief that GOOGL stock could achieve this valuation.

Analyst Consensus on GOOGL Stock

The majority of analysts maintain a positive outlook on GOOGL stock. Refinitiv’s survey of 45 analysts indicates an average price target of $153.66, reflecting a 7.7% upside from the closing price on January 12., tracking 42 analysts, reports an average price target of $165.06, suggesting a potential 15.7% upside in GOOGL stock.

AnaChart further reveals that out of 207 stock price recommendations, 95% still advocate buying GOOGL stock.

Growth at a Reasonable Valuation (GARP)

Alphabet aligns with the Growth at a Reasonable Valuation (GARP) framework. Analysts project an 11% revenue growth in 2024 compared to 2023, with a forecasted revenue of $340.1 billion. Similarly, earnings per share (EPS) are expected to increase by 16% to $6.66 in 2024, surpassing the average prediction of $5.74 for 2023.

This places GOOGL stock at an attractive 21.4 times forward earnings, presenting a favorable valuation when compared to peers like Microsoft (MSFT) trading at a 34x forward multiple.

Free Cash Flow Potential

Recent analysis indicates that Alphabet could generate a significant $111 billion in FCF for the year. Based on a 32.7% FCF margin from the projected $340 billion in revenue, applying a 25x multiple to value this FCF could raise the market cap to $2,775 billion. This represents a 55% increase from the current $1,79 billion market cap, indicating a potential stock value of $221.11.

In summary, despite recent stock price fluctuations, investors in GOOGL stock stand to benefit from its appealing valuation. The upcoming earnings release on January 30 holds the potential to reinforce investor confidence, particularly if Alphabet showcases a robust FCF margin, paving the way for further gains in GOOGL stock.

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