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Mittwoch, 26. September 2018

Buying GOOGL Because FANG Uptrend is Broken

I have a long history investing in Google. My first encounter with the stock was shortly after its IPO, when it was only a search engine (albeit a very good one, already dominating that market). I dared to short it then (via put options) because I remembered very well that only a few years before "Altavista" and Yahoo dominated the internet search business and I did not see why a search engine company should be valued above 20 billion dollars, when obviously a few years later the next leader will arise and displace it.
That didn't turn out to be a profitable bet (as you might already have guessed). It took me a while to see and understand why Google was here to stay but eventually I got it and switched sides to become a GOOG shareholder - and stayed that for many years.

Can't grow forever

Only in recent years did i trade in and out of the stock because, obviously, the company can't grow at a 15-20% rate forever (and the stock's valuation still assumes significant growth at least for a few more years).

Or, can they?

What made me change my mind again is to see what Alphabet did with "Youtube Kids". As the father of a two year old I can tell: Kids love it. I would even say, I am not aware of any other product that can entertain a child of that age in an equally addictive way (you better hide that option from your kids as long as possible!).

Of course, Youtube Kids is not worth a trillion dollars. But it is a good example how Alphabet has been diversifying its business from search. They don't stop creating products almost everyone uses almost every day.

And this company does not only invent great products (actually, they did not even invent online search). But they have tens of thousands of very capable engineers and so they have managed to make things that already existed before so much better that nobody could compete with Alphabet's product. Which is quite impressive, because the competitors they beat are also multibillion dollar tech companies, the likes of Microsoft (who they beat in the browser market although Internet Explorer had a head start and came bundled with the almost-monopoly desktop operating system Windows. Still Chrome became dominant; as Android did in mobile OS).

What the market is missing

Ok, we already have a market cap of 830 billion dollars (enterprise value 100 b lower - they have a huge cash balance) with multiples (PE, P/S) nowhere nearly suggesting a "value bet". This clearly isn't a hidden gem.

But I think there are still areas into which Alphabet can grow at fast pace, which are not fully appreciated by the market (banking, for example).

By many investors, GOOGL is seen and treated as part of "FANG" or "FAANG" (Facebook, Amazon, Apple, Netflix, Google) - but while i do agree that F, A (Apple) and N might stop growing as early as next year, I think G is different.

I'm buying below 1200.


I am long GOOGL.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendationit's only an explanation for my own trading.)
I do not know the future either.

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