October 8, 2023
Summary
Alphabet (GOOGLE)
American large cap company
Technology sector
Market Cap $1,740,857 million
Recurring Ad Revenue
World's largest search engine
Strong MOAT on intangible assets and brand
Within the three companies that dominate the global Cloud market
Great beneficiary of AI
The ecosystem becomes stronger as more users adopt its products
20% CAGR revenue last 5 years
High EBIT margins of 26%
ROIC of 43%, exceptional
Net cash ($90 billion)
Stock market performance
The company went public in August 2004 at a price of $85. After two splits that the company has had since its IPO, the first in 2014 for 2:1 and the second in 2022 for 20:1, it is equivalent to an IPO price of about $2 today.
It is currently trading at a price of $137 per share
A revaluation of almost 70 times since its IPO.
In other words, having invested $10,000 in Alphabet in 2004 would give a market value of more than $700,000 today.
1. Company
Alphabet is a technology company that needs no introduction, it is present in practically the entire world and is the largest search engine and online services on the planet. The company was founded in 1998 under the name GOOGLE by Larry Page and Sergey Brin, later becoming the main subsidiary of the Alphabet Inc holding company in 2015.
The Alphabet ecosystem is immense and ranges from its search engine to its Android operating system, Gmail, Google Chrome, Google Maps or YouTube, among others. The company is a money generating machine, coming mainly from the generation of ads with Google Search, YouTube ads and Google Network, which represents 80%, Google Cloud currently represents a small part of almost 10% of the company's revenue. the company.
Alphabet knows perfectly how to monetize many of its intangible assets, which is precisely where its greatest competitive advantage is found. The company has multiple licenses and software, and a brand, GOOGLE, that is valued at more than $577 billion.
To put ourselves in context, with a total revenue of $280 billion last year, Alphabet is one of the giants of the market, a kind of oligopoly, along with other large companies such as Meta or Apple, difficult to dismantle, and if this were to happen, the company would probably It would emerge stronger, as happened in its day with Rockefeller's famous Standard Oil. There are so many features of this giant at the service of people, that we could not imagine a world without its search engine, Google Maps, Docs or YouTube.
The company's constant innovation and diversification keeps it always at the forefront of new technologies, venturing into various areas such as robotics, Cloud or autonomous driving electric cars, in addition to the recent boom in artificial intelligence (AI) where the company has all the chances of being one of the big players in the future.
The financial situation is one of the most solid in the industry with a net cash of $90 billion, yes, you heard correctly, $90 billion, it is one of the companies with the largest net cash in the world, followed by Meta (Facebook) with $36 billion and Microsoft with 26 billion. This solid cash position leaves it in a position to invest more than anyone else in R&D and acquisitions to continue growing. At this point it is worth noting that the company's market price is lower if we discount the net cash. This is like buying a house and inside it there is a safe with a large sum of cash, we must deduct that cash from the price paid. This is exactly what is happening with Alphabet, a company that is worth $90 billion less than its market capitalization.
The management team knows perfectly well how to take care of that money and make good use of capital, capital allocation, for this reason Alphabet has an ROIC of 43% or what is the same, for every $100 invested, the company obtains $43 each year. Very few companies, with this size, are capable of generating such high returns on invested capital.
All this without considering all the services that the company offers and that it has not yet monetized, services such as Google Drive or Google Maps, which with a small annual fee, considerably increase its income. I would dare to say that 95% of users will continue using the services, which would mean clean income for the company of enormous figures, directly to the coffers of the company and the shareholders. Obviously this idea can be overshadowed by the constant trials to which the United States government subjects the company, so that it does not become a technological monopoly.
In short, Google has become an advertising giant in the digital age, functioning like modern advertising highways. While in the past we had advertising billboards along the roads, like the iconic Marlboro cowboy, today companies like Google and Meta offer advertising services in an environment without geographical limits. These digital platforms provide unprecedented global reach and targeting capabilities, transforming the way companies promote their products and services in the digital world.
Let's move on to the next point, the company numbers.
2. How the company makes money
If we look at the company's financial statements, we see that the income comes mainly from seven items, of which three of them represent 80% of the income in 2022. I am talking precisely about Google Search, YouTube ads and Google Network, the part which corresponds to income from ads or Google advertising. Under this point, we can understand that the company collects a large part of its income from clients who pay to advertise on the company's different platforms, income that is increasingly recurring as the market becomes more competitive for the advertiser.
Google Ads is Alphabet's main source of income. It offers an advertising platform that allows businesses to create ads and display them in their search results and on partner websites through the Google Display Network. Alphabet makes money every time someone clicks on one of these ads (pay per click) or when ad impressions are shown (pay per impression), and this increases every year due to the increase in search queries, new users on mobile devices , and most importantly, the increase in advertiser spending to become increasingly visible.
In the field of global digital marketing, Google Search clearly leads, holding a market share of 29%, while its closest competitor, Facebook, lags behind with a share of 11%. YouTube is in sixth position, with 3%, behind platforms such as Instagram and Amazon.
The following image shows the different divisions of the company and their income.
Income by type of services 2022
The core of Google services include ads, Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search and YouTube, a perfectly connected ecosystem on which users are increasingly dependent.
An aspect that stands out and that helps the company make money, with extremely low costs, is the creation of “free” content by users, and I am talking precisely about YouTube. There are more and more channels that are born on the platform and for this content, the company does not have to invest a single dollar out of its pocket, unlike other content platforms such as Netflix where the company must spend large amounts of money to create content to its users. Undoubtedly, people spend more and more hours on YouTube, which generates a double benefit for the company. On the one hand, greater income is obtained through advertising, and on the other hand, the creation of free content constantly increases, making the platform increasingly recurring and attractive to the user. In short, it's hard to ask for better from a business!
3. Growth
One of the main keys to the company's growth is constant innovation through research and development engineering, improving old products and developing new ones, which in turn have a commercial relationship with those that were already within the scope of their business activity. In this way it manages to have a series of products related to each other. Using a simile, it would be like a group of trees in which each one produces additional branches from its own trunk.
The Californian giant's sales have been spectacular over the last 10 years, going from 50.17 billion in 2012 to 282.8 billion in 2022, a growth of 19% CAGR, undoubtedly high for a company of this size.
Over the last decade, Google has maintained a constant and coherent strategy, which has resulted in continuous growth, even during economic crises such as the 2008 financial crisis or the recent crisis of 2020. And why is this so? Because the worse the economy is, companies need to invest more in advertising to survive.
The fact that Google has maintained a consistent and coherent strategy over the past 10 years is a reflect to its strong focus on innovation, market adaptation and efficient management (focus on innovation, diversification of products and services, emphasis on user experience, strategic acquisitions and adaptation to change).
Revenue evolution 2013 − 2022 (MM)
Google has seen substantial growth over the years, and its expansion strategy has been driven by both organic growth and strategic acquisitions. Below, I will delve into both aspects:
Organic growth:
Search Engine: Google started as a search engine in 1998 and quickly became one of the most popular and effective search engines in the world. Its search algorithm has been continually improved and refined to deliver more relevant and accurate results.
Product Diversification: Over the years, Google has developed a wide range of products and services beyond search. This includes email services like Gmail, mobile operating systems like Android, the G Suite productivity suite (now Google Workspace), the Chrome web browser, and cloud services like Google Cloud.
Constant Innovation: Google is known for its culture of innovation and development of ambitious projects, such as the Waymo autonomous vehicle project, the artificial intelligence division DeepMind, and efforts in hardware technology with products such as Pixel phones and Nest devices.
2. Growth by acquisitions:
YouTube: In 2006, Google acquired YouTube, the world's largest video-sharing platform. This acquisition allowed Google to expand into the online video market and video advertising.
Android: In 2005, Google acquired Android, Inc., and subsequently developed the Android operating system, which has become the most widely used mobile operating system in the world.
Strategic Technology Acquisitions: Google has also made a number of strategic technology acquisitions to strengthen its position in key areas, such as purchasing Waze to improve navigation and traffic information, and acquiring Nest Labs to enter the mobile device market. the smart home.
These are just some of the acquisitions the company has made. Alphabet is characterized by constantly making acquisitions when it sees an opportunity and to date has made more than 200 acquisitions since its inception.
These strategic acquisitions and expansions have allowed Google to diversify its revenue and presence in different technology sectors. Google has used its size and resources to invest in new technologies and growth areas, which has greatly contributed to its continued success as one of the world's leading technology companies.
The geographic distribution of Alphabet's sales is an important aspect of understanding the diversification of its revenues globally.
Revenues by Geography 2022 (MM)
The United States has historically been the main source of income for Alphabet. This is largely because Google, the largest company within Alphabet, has its origins in the United States and has had significant dominance in the online advertising market in that country. In 2022, 48% of Alphabet's total revenue came from this region.
Europe is another important market for Alphabet, and represents a significant portion of its revenue, 29%. The company has been successful in online and cloud advertising in this region, and has been expanding its operations in several European countries. In 2022, Europe contributed substantially to the company's revenue.
The Asia Pacific region, which includes markets such as China, Japan, South Korea, India and other countries, is a growing source of revenue for Alphabet. Google and other Alphabet companies have been working on expanding their presence in this region and have seen positive results in terms of revenue.
Importantly, the geographic distribution of Alphabet's revenue may vary from year to year and is subject to change based on developments in the markets and the company's business strategies.
4. Company margins
Regarding margins, the company has solid operating margins over time, around 25%. We already know that all the increase in sales in the world will not mean a good investment if, over the years, profits do not grow accordingly. The company has been able to maintain high operating margins over time, thanks to operating leverage, using the same fixed costs in its structures, to increase profits. Net profit margins around 20% have remained in line for years, demonstrating the strength of the company over a long period of time.
EBIT operating margins
Net profit margins
For a company the size of Alphabet, these margins are extraordinarily good and demonstrate the undoubted competitive advantage that the company has, something that it has managed to maintain over the years.
Regarding the company's margins, it is worth noting that Alphabet achieves a high operating profit (EBIT) thanks to the solid performance of Google Services (advertising and other services), its main source of income and which contributes higher margins to the company. Google Cloud and Other Bets divisions continue to operate at a loss. This is because these divisions are in an implementation and development phase (as their name suggests), and represent a commitment towards future challenges and opportunities in areas such as transportation, health, climate change and artificial intelligence (AI). At the moment these items are small and represent only 9% of the company's total income. The company's objective is that in the medium-term framework, these items have a positive operating profit and in the long term they form a considerable part of the company's income.
5. Earnings per share (EPS)
Alphabet has seen steady EPS growth over the past few years. This is a positive indicator for investors, and demonstrates the good management of the company, generating higher earnings per share. This increase is associated with an increase in the share price, because investors see the company as a profitable option.
Alphabet's ability to maintain and grow its EPS is linked to its investment and expense management. The company has invested in various areas, such as the expansion of its data center infrastructure, research and development of new technologies and strategic acquisitions, influencing its EPS.
Another important point is the recovery programs that the company usually implements, this helps reduce the number of shares in circulation and increases EPS.
All this has caused earnings per share to go from $1.39 to $4.72 today, a growth of 19% CAGR (compound annualized growth) over the last 7 years.
EPS and shares outstanding
6. Personal and good working relationship
Alphabet stands out for cultivating an exceptional work environment that has a positive impact on its employees' personal relationships. One of the most notable aspects is the low staff turnover, which promotes the formation of strong human relationships and, at the same time, significantly reduces the costs associated with training new workers. This low turnover is a clear indication of a company that is being managed effectively.
The company offers benefits that far exceed the industry average and correspondingly pays wages above the industry average, contributing to high-quality employment relationships. If we consult sources such as Glassdoor, we can see that the comments from current and former employees are extremely positive, especially highlighting the competitive salaries and other benefits that Alphabet provides to its employees and their families, including aspects such as health, financial benefits, opportunities professional development and more.
In addition, the company has highly competitive compensation programs that allow it to attract and retain the best candidates in the labor market. Additionally, it continues to invest in finding and hiring talented people for both technical and non-technical roles. This demonstrates their commitment to talent acquisition and retention to remain an industry leader.
From its headquarters in California, a space that includes game rooms and multiple entertainment, Alphabet promotes interaction among its employees to encourage the generation of new ideas. It is in this favorable environment that the innovative projects that characterize the company are born.
In addition to its headquarters, Alphabet has offices in major cities in the United States and is present in several countries in South America, Europe, South Africa, India, Asia and Australia. This extensive global presence allows the company to collaborate with talent and access key markets around the world, contributing to its success in innovation and the development of cutting-edge technologies.
Alphabet currently has more than 190 thousand workers and the company recognizes that the workforce is a key factor for its success and its objective is to continue investing in them.
Alphabet currently has more than 190 thousand workers and the company recognizes that these are a critical factor for its success and its objective is to continue investing in them. As for salaries, an average Alphabet engineer earns between $150,000 (entry level) and $350,000 (Principal Engineer) as a base salary per year before taxes, plus bonuses and shares reaching a total of between $180,000 and $1,100.00 respectively.
7. Management
The management capacity of a company is an essential aspect for its continued success. Alphabet, Google's parent company, has stood out for its strong management skills and focus on effective management.
One of the key aspects of the company's management capacity is found in its outstanding executive leaders throughout its history. At the time, Larry Page and Sergey Brin, Google's co-founders, took on key executive roles. Sundar Pichai, who serves as CEO of Alphabet and Google, has demonstrated effective and visionary leadership. Choosing leaders with long-term vision and strong management skills has been critical for the company.
Alphabet has also implemented an organizational structure that allows its various units to operate with a certain autonomy. This includes the separation of Google and its various divisions, such as YouTube, Waymo, Google Cloud and other projects under the supervision of Alphabet. This structure facilitates management and decision making in each business unit.
Alphabet's leadership is also highlighted by its focus on innovation and experimentation. The company is not afraid to invest in ambitious projects that might not generate immediate income, but have long-term potential. This is exemplified in "Other Bets", where they focus on areas such as health, transportation, and information technology.
Alphabet promotes a company culture that values creativity, diversity and collaboration. Employees are encouraged to think innovatively and take calculated risks. This contributes to the company's ability to stay ahead in an ever-evolving technological environment.
Alphabet's leadership capabilities are also reflected in its focus on corporate responsibility and sustainability. The company has adopted sustainable practices in its operation and is committed to using 100% renewable energy.
We are undoubtedly faced with a high-level management team, made up of several key executives who held strategic positions in the company. Below I will mention some of them and briefly describe their role in the company.
Sundar Pichai (CEO of Alphabet and Google): He took over as CEO of Alphabet in December 2019, in addition to remaining CEO of Google. He is responsible for the strategic direction of both companies and oversees Alphabet's global operations.
Ruth Porat (CFO of Alphabet and Google): Ruth Porat served as Chief Financial Officer of Alphabet and Google. She oversees finances and strategic planning for both companies.
Sergey Brin and Larry Page (Google Founders): Sergey Brin and Larry Page, the original founders of Google, held positions on Alphabet's board of directors. Although they were not directly involved in the day-to-day management of the company, they were still influential figures.
Regarding the shares held by the company's executives, it should be noted that there are 2 types of shares, those of:
Class A listed on the stock exchange and with voting rights.
Class B Unlisted and untraded, which are held by the founders, which confer voting power 10 times greater than that of Class A shares.
This point is important because although the founders, Sergey Brin and Larry Page only have 6% of the shares respectively, they have more than 51% of the voting power.
Vanguard and Blackrock are the company's largest shareholders with 8% and 5% respectively, with voting power of 4% and 2%.
In reference to salaries, in the last year 2022 the CEO Sundar Pachai had an extremely high remuneration, of $225.99 million, due to incentives in company securities worth $218 million, something that we hope is not recurring and much less for these figures. It must be considered that in previous years, the salaries received by Pachai were low for a company of this size and sector, a salary of $6 million in 2021 and $7 million in 2020, which we can compare with salaries like the CEO of Apple, Tim Cook who received a salary of $99 million in 2022.
Summary compensation table 2022
8. Competitive advantages
Alphabet is one of the companies with the greatest competitive advantage in the world, a claim supported even by large investors. The company has built a series of formidable barriers that protect its business from competition, a moat or MOAT that is very difficult to penetrate, or in simple words, a business that is difficult to copy.
8.1 Network Effect
Without a doubt, one of Alphabet's main competitive advantages is its network effect. Google's search engine dominance makes the service more valuable to all of its users as the service adds more users. Google's search engine service improves as users perform more searches and websites are optimized to stand out in Google search results. Ultimately, the more people use it, the more data Google collects, which in turn improves the quality of its search results and its ability to provide relevant advertising. This attracts more users and advertisers, creating a virtuous cycle that strengthens Google's position.
This effect is also reflected in the Google advertising network, which provides relevant ads to Internet users according to their interest profiles. As Google accumulates knowledge about users through their searches, it improves its advertising targeting capabilities.
As Google maintains significant dominance in the search market, its position will strengthen, creating a strong and extensive competitive moat.
Additionally, Alphabet offers a variety of products and services that are interconnected. For example, Google Search, YouTube, Google Maps, Android, and Chrome are part of a larger ecosystem. The more users use these services, the more valuable they become overall. A user's data and preferences may influence their experience across various Alphabet products.
Google Cloud, Alphabet's cloud services division, also benefits from the network effect. As more companies adopt its cloud solutions and productivity tools, economies of scale are generated that improve infrastructure and services, which in turn attracts more companies to join the platform.
Alphabet is heavily involved in artificial intelligence (AI) and machine learning. The more data and users AI uses, the better it becomes at identifying patterns, recommendations, and optimizing services, attracting more users and applications that take advantage of these capabilities.
Alphabet also ventures into "Other Bets", where it invests in innovative projects in areas such as health, transportation and information technology. As these projects mature and attract users or customers, they can become additional sources of network effect.
Company Network Effect
8.2 Intellectual property
The intellectual property related to Google's search engine algorithm is one of the company's most valuable and closely guarded assets. The Google algorithm is the set of mathematical formulas and rules that determine how search results are ranked and displayed on the Google platform. These formulas consider a wide range of factors such as content relevance, website authority, geographic location, content freshness, and many others.
8.3 Brand
The brand is another of the competitive advantages that the company has. The name Google has become a universally recognized name for carrying out searches on the Internet. Brand is an essential asset in the success of any company, and in the case of Google, its brand is particularly strong and valuable. Regarding brand value, Google has a market value according to BrandZ of around $577 billion in 2022 (brand only), more than 50% higher than just 2 years earlier in 2020, and is in second position on the list, behind Apple.
The Top 5 most Valuable Global Brands 2023 (billion)
Google is one of the most recognized and valuable brands worldwide. The name "Google" has become synonymous with online search, and its presence is felt in virtually every corner of the world. This high level of global recognition is an invaluable asset for the company. Credibility and trust, the network effect, diversification of products and services, competition and loyalty, and market value are examples of how Google's brand has created prestige and influenced its position in the technology industry and in life. everyday life of people around the world.
9. Peers
Alphabet, as a leading technology company, has a unique profile due to its broad reach and diversification in areas such as online advertising, cloud computing, software development, artificial intelligence and many others. However, there are some companies that are comparable in certain aspects and that operate in similar or related areas. Some of these companies are:
Facebook (Meta Platforms, Inc.): Facebook is one of the world's leading technology and social media companies. Like Alphabet, Facebook focuses on online advertising and offers digital services and products globally.
Amazon: Amazon is an e-commerce giant and also offers cloud computing services through Amazon Web Services (AWS). Although their focus is different from that of Alphabet, both companies are leaders in technology and online services.
Microsoft: Microsoft is known for its Windows operating system and software products, but it is also a competitor in the cloud space through Azure. Like Alphabet, Microsoft has a wide diversification of technology products and services.
Apple: Apple is a leader in hardware, software and services, competing in areas such as mobile telephony, personal computing and online music. Although their approach is different from that of Alphabet, both companies are important players in the technology industry.
Netflix: Netflix excels in streaming online content and producing original content. Although it differs from Alphabet in terms of products and services, both companies compete for the attention of online users.
Salesforce: Salesforce is a leader in the enterprise software and cloud services space. Offers customer relationship management (CRM) solutions and business productivity tools.
IBM: IBM is a technology company with a long history in the industry. It offers cloud services, artificial intelligence, data analytics and business solutions.
The following table shows the main metrics of these companies
Alphabet is in the high range of compared companies for growth, high operating margins and an extraordinary ROIC.
The company's financial situation is healthy, with a Net debt/Ebitda in favor of the company of 0.92x due to the net cash of almost 90 billion.
Regarding valuations, historically it has been on average around 24x PER and about 13x EV/EBITDA, so it is currently slightly below its historical valuation and below most of its comparables.
10. Risks
Alphabet, like any company, faces a number of risks in its operation and in the business environment in which it operates. Among the key risks that could affect the company are:
Regulation risks: Perhaps this is one of the greatest risks to which the company is exposed. Technology companies, like Alphabet, are subject to government regulations and changes in public policy. Changes in data privacy regulation, competition, copyright and other matters may affect your ability to operate and generate revenue. Fortunately, the company has headquarters and operates in serious countries, with stable regulations and solid currencies.
Competition: Competition in the technology industry is fierce. Competing companies, both large and small, may develop products or services that challenge Alphabet's position in the market.
Privacy and data security: Personal data management and information security are constant and fundamental concerns. Data security breaches or privacy issues can damage a company's reputation and result in regulatory sanctions.
Changes in user trends: Changes in user preferences and behaviors may affect demand for Alphabet's products and services. For example, the adoption of new platforms or the preference for certain types of content can influence company results.
Business cycles: Global economic conditions can affect advertising investment and technology spending. In times of economic downturn, companies often reduce their advertising and technology budgets.
Currency Exchange Risk: Alphabet operates worldwide and is exposed to currency exchange risks. Unfavorable fluctuations in exchange rates may impact your financial results.
Development of new technologies: The rapid pace of technological advances means that Alphabet must continue to invest in research and development to maintain its competitive advantage. Failure to adopt new technologies or trends can be a risk.
Litigation: Technology companies often face litigation related to patents, intellectual property, competition, and other legal issues. The costs associated with litigation can be significant.
Unexpected events: Unforeseen events, such as natural disasters, technological infrastructure disruptions, or cybersecurity crises, can disrupt company operations.
Cost: Rising labor, infrastructure and energy costs can impact company profitability.
Changes in online advertising: Since much of Alphabet's revenue comes from online advertising, changes in advertiser habits and consumer preferences may affect the company.
Alphabet is aware of these risks and is working to proactively manage them. The company diversifies its revenue across multiple segments and focuses on continuous innovation and adaptation to an ever-changing business environment. In addition, it maintains a strong financial position and efficient resource management to address these challenges.
11. Valuation
To value the company I will do so under the assumption of three scenarios, to estimate the different future situations that may arise.
1. Conservative
2. Optimistic
3. Pessimistic
The general premises are the following:
The company has grown over the last 10 years at rates of 20% on average, last year 2022 at 10%, so I will estimate growth above this range to value the company.
The company's historical average valuation is around 24x PER and 12x EV/EBITDA. Due to its high growth and constant investment, CAPEX is greater than depreciation and amortization, so I will value the company by these multiples, PER and EV/EBITDA
It is currently at a valuation of 22x PER and 12x EV/EBITDA, multiples closer to its historical average, after the latest rise due to the rise of AI. Alphabet was below 20x PER from September 2022 to March 2023, reaching a minimum of 17x PER, multiples even lower than those seen in the 2020 health crisis.
The company is currently trading (market cap) for $1,740,857 million, at a price of $137 per share, with a total of 12,609 million shares.
11.1 Conservative scenario
We assume a revenues growth of 8% for the first year and 14% for the following years. In this scenario, the company continues along its current path without losing market share.
Operating margin (EBIT) of 27%
15% tax rate
Valuation multiples of 25x PER and 14x EV/EBITDA, multiples close to their historical average.
Current trading price $137 per share.
Expected return around 12% annually CAGR, over five years. *
Target price could be around $180 in 3 years and $250 in 5 years.
11.2 Optimistic scenario
Sales growth of 8% for the first year and 18% for the following years.
Expansion of operating margins to 30%
16% tax rate
Multiples of 28x PER and 16x EV/EBITDA
Current price of $137 per share.
Estimated return around 20% CAGR over five years. *
Target price would be around $240 in 3 years and around $340 in 5 years.
2x the initial capital in five years. *
11.3 Pessimistic scenario
Sales growth slows down, 8% for the first year and 12% for the following years
Compress margins to 23%
15% tax rate
Multiples of 20x PER and x 11 EV/EBITDA
Current price $137 per share.
Estimated return 3% CAGR over five years. *
Target price could be around $130 in three years and $160 in five years.
In a pessimistic scenario the returns are quite low, below inflation.
Conclusion
This technology giant undoubtedly possesses one of the strongest competitive advantages in the market, backed by its dominant position in the industry. Its prestige makes it a valuable addition to any investment portfolio and a company worthy of attention. Confidence in its ability to innovate, adapt to market changes and maintain its leadership makes it a desirable investment for those seeking growth and stability in their portfolios. Its proven track record of success, coupled with its strong financial position, further supports its appeal as a company worthy of attention in the investment world.
Currently the price to future earnings ratio is within its historical range of about 22x PER. It is important to consider that in the last year the company has been below 20x PER on several occasions, which makes us think about waiting for the next opportunity. Investors could choose to wait for its price-to-earnings ratio (PE) to be below 20x before making a purchase decision, thus ensuring a fairly priced acquisition and avoiding overpaying for the company. It may be, however if we consider the quality of the company, it could be a good investment even at the current valuation if the company manages to develop significant innovations or implement changes that boost its profits.
One aspect that requires monitoring is the continuous increase in stock-based compensation that the company grants to its employees as an incentive in their roles, currently representing a cost of 7% of total sales. This phenomenon is becoming increasingly evident and necessary to attract new talent to the company, which deserves close monitoring. If this increase continues at current rates, it could pose challenges for the company in the long term.
Definitely, a good option to have in a portfolio
Disclaimer
This analysis is not a buy or sell recommendation, it is my personal opinion and each person must make their own analysis of the company.