(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, the parent of search engine giant Google, may be set to rebound by about 7%, based on a technical analysis of the chart. The stock is up about 2% on the year but is nearly 9.5% off its highs since late January, worse than the S&P 500's decline from its highs of almost 7%.
It isn't just the technical chart that suggests shares of Alphabet will rise; an analysis of the options market also suggests the stock may bounce by the middle of June. Analysts have been upping their estimates over the past few weeks and are also growing more bullish on the company. The three indications appear to point to a stock poised to rise from its current price around $1,075.
The chart below shows Alphabet shares have been trending higher since July 2015 but stalled out when the stock hit an intraday high around $1,200 in late January. Shares tanked when the company reported fourth-quarter results at the beginning of February, that failed to impress investors. However, it managed to find technical support at $1,000 on three occasions, setting up a triple bottom, a technical reversal pattern. Shares now appear to be breaking out of a downtrend, and it may result in shares rising to a technical downtrend at nearly $1,150, about 7% higher than its current price.
Additionally, the relative strength index (RSI) has been trending higher even though the stock has been range bound since the middle of April. That is a bullish divergence and suggests Alphabet's shares are poised to rise.
The options market also implies Alphabet may rise over the short term, although not as high as the technical chart suggests, using the options set to expire on June 15. At the $1,100 strike price, there are nearly 2,300 open calls, representing a dollar value of about $4.9 million, a sizeable wager. With the contracts trading at the cost of about $17, it would mean the price of Alphabet would need to rise to roughly $1,120 to break even, about 4% higher than the stock’s current price. The open interest at the $1,100 calls has been steadily building over the past couple of weeks, another bullish signal.
Analysts Upping Targets
Part of the reason why shares of Alphabet may be rising is that analysts have been upping their earnings and revenue estimates for the company. Over the past 30 days, earnings estimates have climbed by nearly 5% to $43.26 per share, representing growth of approximately 35% from a year ago. Revenue estimates have also risen by 1.5%, to $135.65 billion, representing an increase of 22.3% from last year. Analysts have an average price target on the stock of $1,255, nearly 17% higher than its current price, based on data from YCharts.
Alphabet's stock is getting its footing back after a rough few weeks and has three elements suggesting a surge may just be beginning.
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.