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 share price has fallen from $2,180.6 to $109.03 (18.07.2022).
Alphabet could benefit from the split
Two-for-one stock splits are usually common. But Alphabet shares have become so expensive during the last bull market that many new investors stopped buying them. With the split, trading volume is increasing again because small investors can now trade Alphabet shares again.
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 need to buy the stock, which would benefit the price.
Warren Buffett led the way Berkshire Hathaway (WKN: 854075) never split in its life, which is why the stock is currently at 411,500 euros. It attracted long-term investors and deterred speculators. Short selling is also hardly possible in this way.
But has the stock split made Alphabet stock more attractive again?
Alphabet shares have become cheaper
The answer is: Alphabet is neither more attractive nor less attractive after the split, because the capital target has not changed anything in relation to valuation or business model.
However, 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 ). However, from my point of view, the shares are not yet undervalued.
There are currently problems. Many people used the Google search engine more intensively during the pandemic than this year. In addition, advertising revenue may decrease due to the economic slowdown. Alphabet is investing heavily in the cloud business, where it is lagging behind Microsoft (WKN: 870747) and Amazon (WKN: 906866) is far behind. In addition, the “other bets” department is still posting losses. In the first quarter of 2022 alone, it was -1,155 million US dollars.
In Russia, the Google parent has to pay a fine equivalent to 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 questionable how long Alphabet will continue to accept the penalties.
The quality is still high
Still, Alphabet has a very stable business model that suffers little in crises. Even at the current stage, the stock is underperforming the broader market. In addition, the company easily gets through a recession with an average profit margin of 21.7%. In addition, with a solvency ratio of 70%, it is not particularly dependent on banks, which also contributes to the stable development of the share price.
The article Alphabet stock: Is it now cheap at 107.10 euros? first appeared on The Motley Fool Germany.
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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 Fool’s board of directors. John Mackey, CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares in and recommends Alphabet (A & C shares), Amazon, Berkshire Hathaway (B shares) and Microsoft and recommends 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).
Motley Fool Germany 2022