(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of GOOGL.)
Alphabet Inc.'s (GOOGL) stock has fallen sharply since the end of August. The stock now finds itself almost 8% off its highs around $1,285 during the middle of July. But the parent of the search engine Google may be set to rebound by as much as 8% in the coming weeks, according to technical analysis.
Analysts see the stock rising even higher, by as much as 17%. They have increased their average price target on the stock since January.
The technical chart shows shares of Alphabet falling to technical support around $1,170. Should the stock continue to hold above that level of technical support, it could help to fuel a rise back to $1,271. That is the next level of technical resistance. It would be an increase of almost 8% from the current price around $1,180.
Increasing Price Targets
Analysts, on the other hand, see shares rising even higher to an average price target of roughly $1,385. The price target had increased by more than 16% since the beginning of the year when it was approximately $1,187.
The optimism among analysts comes as earnings and revenue estimates for the company rise. Since the beginning of the year, earnings estimates for 2018 have increased by more than 15% to $47.79 per share. That’s a growth rate of more than 49% versus 2017.
Revenue estimates have also been rising and are forecast to climb by almost 24% versus 2017 to $137.2 billion. That is up from prior forecasts of $130.5 billion in early January, an increase of more than 5%.
The big question for Alphabet is in 2019. That is when analysts are forecasting a significant slowdown in earnings growth. Earnings are forecast to rise by only 4% to $49.62. Meanwhile, revenue is forecast to grow by more than 16.5% to $159.9 billion. These estimates suggest the company may see a significant increase in cost and spending next year. But the earnings slowdown isn't expected to last. That’s because 2020 earnings are forecast to grow by almost 19% to $58.91.
Alphabet's stock is cheap when compared to its technology peers at roughly 24 times 2019 earnings estimates. But that valuation is also on the higher side of Alphabets historical range since 2015 of 16 to 26.
So, while the technical chart and the analysts’ price targets see Alphabet's stock rising, it does not mean it will come easily. The company will not only have to deliver strong results. But it will likely have to beat expectations to keep its stock price rising.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.