(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his client's own shares of GOOGL and NFLX company.)
Shares of Alphabet Inc. (GOOGL) may be nearing a technical breakout, sending the stock on to record highs. The stock has climbed by just under 20% over the past year, just beating out the S&P 500’s return of about 14%. But Alphabet has underperformed fellow FANG stocks, such as Amazon.com Inc. (AMZN) and Netflix Inc. (NFLX) by an extensive margin, with shares of Amazon surging by about 76% and Netflix rising by nearly 159%.
The business outlook for Alphabet continues to improve, and analysts continue to up their estimates for the company in 2018. Analysts have also been upping the company's price target since the start of the year and now see the stock rising by about 8% to $1,254.
Nearing a Breakout
Alphabet is nearing a big technical resistance price at approximately $1,170, and should the shares rise above that level, the stock could be off to the races. That resistance level stood as a significant obstacle the last time the stock reached that price back at the start of March, and shares plunged by nearly 15% back to $1,000, a technical support price.
But the odds appear to be improving on this latest attempt, with a strong technical uptrend in place, and a bullish technical continuation pattern called a rising triangle. Additionally, the relative strength index has been trending higher, suggesting momentum is coming into the stock, while still below an overbought reading of 70. Should shares stage a breakout, it would likely result in it climbing above its previous all-time intraday high of around $1,200, about 4% from its current price of $1,155, around noon on Friday.
Analysts Optimism Grows
Analysts have been growing more bullish on the stock in recent months, raising 2018 earnings estimates by nearly 5% since the start of the year. Forecasts are now calling for the company to earn $43.46 per share in 2018, an enormous growth rate of about 36% versus last year.
Meanwhile, forecasts for revenue have also been rising. Revenue estimates have climbed by roughly 4% since the start of the year to $135.8 billion, a growth rate of nearly 23% versus 2017.
The amount of growth the company is providing considering the size of the revenue base is extremely impressive and is perhaps one of the reasons why the average price target on the stock has been rising as well. The average analyst's price target has climbed by over 5% since the start of 2018.
There appears to be a strong fundamental reason for the sudden change in Alphabet's technical chart. Should the stock break out as the technical chart is suggesting, it will happen because the fundamentals are only expected to get better.
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.