Alphabet shares: Is it now cheap for 107.10 euros?

The mother of the Google search engine alphabet (NASDAQ: TSO) has executed a 20x stock split on one security. For example, investors who owned 100 shares now own 2,000. At the same time, the stock price has fallen from $ 2,180.6 to $ 109.03 (18.07.2022).

The alphabet could benefit from the division

Equity divisions in the ratio of two to one security are usually common. But Alphabet stocks have become so expensive during the recent bull market that many new investors stopped buying them. With the split, trading volume rises again because small investors can now trade Alphabet shares again.

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With the higher liquidity, Alphabet is also one step closer to being included in the Dow Jones index. As a result, even more funds would have to buy the stock, which would benefit the price.

Warren Buffett led Berkshire Hathaway (WKN: 854075) never splits in his life, which is why the stock is currently at 411,500 euros. It attracted long-term investors and deterred speculators. Short sales are also hardly possible in this way.

But has the stock split made the Alphabet stock more attractive again?

Alphabet stocks have become cheaper

The answer is: the alphabet is neither more attractive nor less attractive after the split, because the capital target has not changed anything in terms of valuation or business model.

However, the Alphabet stock fell slightly with the crash, so the valuation has improved since November 2021. For example, if the price-earnings ratio was 24.6 at the end of 2021, it is only 18.9 today (18.07.2022 ). From my point of view, however, the shares are not yet undervalued.

Current concerns

There are problems at the moment. Many people used the Google search engine more intensively during the pandemic than this year. In addition, advertising revenue may decline due to the economic downturn. Alphabet is investing heavily in the cloud industry, where it is lagging behind Microsoft (WKN: 870747) and Amazon (WKN: 906866) is far behind. In addition, the “other bets” department still records losses. In the first quarter of 2022 alone, it was -11.55 million US dollars.

In Russia, Google’s parent company now has to pay a fine of the equivalent of 364 million US dollars because anti-Russian content related to the Ukraine war was distributed on YouTube. It also called for protests. Pro-Russian videos, on the other hand, were removed on a large scale. It is doubtful how long Alphabet will continue to accept the punishments.

The quality remains high

Still, Alphabet has a very stable business model that suffers a bit in crises. Even in the current phase, the stock is offering less than the broader market. In addition, the company is easily going through a recession with an average profit margin of 21.7%. In addition, with a solvency ratio of 70%, it is not very dependent on banks, which also contributes to the stable development in the share price.

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Christof Welzel does not own any of the shares mentioned. Suzanne Frey is an executive at Alphabet and sits on The Motley Fools’ board. John Mackey, CEO of Amazon’s subsidiary Whole Foods Market, is a member of The Motley Fools’ board of directors. The Motley Fool owns shares in and recommends Alphabet (A&C shares), Amazon, Berkshire Hathaway (B shares) and Microsoft and recommend the following options: Short January 2023 $ 200 Put on Berkshire Hathaway (B shares), Short January 2023 $ 265 Call on Berkshire Hathaway (B shares) and Long January 2023 $ 200 Call on Berkshire Hathaway (B shares).

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