Alphabet: taking a quick look at the valuation

Is Alphabet (GOOG) a buy at $132?

Please ignore number rounding

Let’s take a look using The Investing Course’s valuation framework.

In 2022 Alphabet’s revenues were $283B, up 10% from the year before. In 2023 it’s on track for $305B (+8%). Gross profits grew by 7% in 2022 to $157B. The last 4 quarters gross profits amounted to $167B. That last number can be seen as the actual size of profits as of today.

How much is this economic situation worth? Well, you can see a stock purchase as you making a loan to the market. It’s worth it (or more) if you have a good chance of getting your money back with a decent or high interest.

GOOG share price

4 years ago the price was half today’s level. Where will it likely be 4 years into the future?

Is back to pre-covid/recent lows of $75-100 or challenging the recent peak (all time high) of $150 more likely? How would you know?

One quick way of checking your chances for a decent return is by making a reasonable forecast for sales and profits, as well as for the likely future valuation multiples.

Don’t know any economics? You can still extrapolate some simple trends just using history as a guide. Growth and profitability are likely to align in some way or another to historical trends, unless something truly unexpected happens.

Making forecasts, without knowing the industry, company or accounting and economics

Alphabet’s sales have grown by about 15-20% per year the last decade, with 2022 and 2023 as strong/weak outliers. After a weak 2023, next year could have been expected to be better than average instead, to keep the average constant. On the other hand, a global recession is looming due to high and rising interest rates working their way through the economy.

GOOG Annual Revenues


GOOG Quarterly Revenues

I would thus guess growth will be lower than GOOG’s average, as inflation cools down, unemployment increases, and a lot more of clients’ money is spent on mortgages and energy. I think Alphabet should be happy to grow by 10% per year the coming 4 years 2024-2027.

Sales for 2027 thus could be estimated at around $305B*1.1*1.1*1.1*1.1 = $445B

The gross profit margin has held quite steady around 55% the last few years. It used to be higher but competition is heating up, not least after the latest AI boom boosting competitors.

GOOG gross profit margin

The gross profit for 2027 should be around $445B x 55% = $245B

Right now, the last four quarters of gross profits were $167B and GOOG has a market value of $1.69T ($1690B). That means GOOG’s market valuation multiple relative to gross profits is 1690/167 = 10x.

RANGE estimates

Assuming the market in four years will still award GOOG a 9-10x Gross Profit multiple, GOOG’s market cap. will be in the range of [9 to 10] x $245B = $2.2T to $2.5T.

In order to calculate the likely future share price we also need to know how many shares are still outstanding for GOOG. Often, the number of shares is fairly constant, but not for GOOG.

GOOG # shares outstanding

The last available # of shares (Q3 2023) was 12.8 billion shares, about a billion lower than four years ago. In four years time it might have shrunk by another billion shares to around 12 billion shares, but probably not much lower due to lower profit and cash flow growth (less available cash for buybacks and adding to the net cash position at the same time).

The market cap per share about four years from now should be closer to $2.5T/12B = $208 per share. It’s quite a bit higher (208/132-1 = +58%) than today’s share price of $132. But is it worth the gamble that our estimates are correct?

Let’s compare GOOG to an obvious alternative: on average over long periods of time (decades and centuries) the stock market has yielded a total annual return of 10%.

GOOG’s estimated 12% per year is a bit better than that, but there is a catch. GOOG is just a single individual company and a lot can happen to a company that just wouldn’t happen to the average of all the 500 stocks in the S&P 500 index. An investor can on average as an alternative simply buy the index and keep making 10% per year with zero effort.

12% per year would still be better, but we would have exposed ourselves to the risk of among other things poor management decisions, FTC measures, a lower growth rate than estimated as the company becomes larger and the economy grows weaker, profit margins fall due to increased competition, and not least to lower valuation multiples if growth slows.


On average the S&P 500 index has historically been valued at around 15x earnings. GOOG’s P/E multiple is 25.3, i.e., considerably higher than the historical market average, the average that has as stated above tended to produce 10% annual returns.

GOOG’s P/E ratio (on last twelve months profits)

GOOG has typically been valued at 25x or more, but the future might very well look a little different to the past, due to higher interest rates and lower growth than in GOOG’s past.

GOOG’s profit multiple could fall by over 30%, if it were to close the gap toward the market as GOOG becomes more and more average, or is seen as such. A 30% lower future share price than our first estimate of $208 would be just $208*0.7 = $145, only 10% above the current price. Four full years from now!

An alternative calculation focuses on Sales and the Price/Sales multiple instead of earnings and P/E. At the pessimistic $145 share price in 2027, the Price/Sales multiple would be 3.9x rather than today’s 5.5x. That’s still a lot higher than the market’s historical average of just about 1.0x. On the other hand, GOOG’s high margins, asset-light operations and demonstrated ability to grow faster than the economy warrants a multiple of several times the average. Whether 4x, 5x or 6x is warranted is taught in The Investing Course. It’s not very complicated but takes more than just a short blog post or newsletter to explain.

If P/S were to fall to 3.9x, then buying GOOG shares today is not attractive at all


You’ll learn the underlying techniques for making forecasts and estimating future stock prices in The Investing Course.

That includes estimating the relative risk level for various investments.

For example if the stock market’s risk level is defined as 100, then a typical stock, more or less reflecting the average stock on the market, could also be assigned a risk score of 100. However, due to idiosyncratic risks for individual companies, at least 125 would be advisable as a benchmark for GOOG. On the other hand, GOOG’s strong position in the economy, and other positive characteristics, probably warrant a better base score than the market. Hence, a final risk score of the market’s 100 might still be the most relevant one. The risk score should reflect how attractive it is to assume individual share price risk for the company in question vs. a broad equity portfolio.

Assigning risk scores is more important and useful for comparing single stocks than vs. the market. Suffice to say however, that considering that the market promises 10% per annum on average over a full cycle, a single stock should always have prospective returns of at least 15% per year, to be worth the risk assumed by investing in individual stocks. Another way to express that would be through a base level risk score of 150 for the average stock. I’ve used 150 in the GOOG example today, but don’t take it at face value as the correct risk assessment for Alphabet relative to the market.


If recent growth and profitability trends are reliable, and valuation multiples hold more or less steady, then GOOG’s share price should rise by 60% over the coming 4 years, or 12% per year. That, however, is not really worth the risk of being wrong in one way or another, or simply having bad luck. Unless you really have insight into GOOG’s plans and prospects, it’s a better risk/reward/effort combination buying a broad mutual fund or a corporate bond, than betting on GOOG.

Check out The Investing Course, to learn more about how to find, value and invest in stocks, how to manage timing and risk, as well as take stock price trends and the overall macro picture into account in your investing.

The Investing Course

The Investing Course Curriculum

The TIC is a 6-week course centered around seven documents with supporting audio and video files. The course consists of an introduction and the six main documents “WEEK 1-6”. “Six weeks” means six weeks, so take it easy, one week at a time. This is not complicated, ‘just’ complex.

Read more and apply here

The Investing Course study order

Post course notes (pdf): an intuitive slant on investing (this course summary doubles as a primer for what to expect from the course and preparation for what to focus on in the ensuing documents, videos and audio files). I suggest you read the Post course notes before anything else, as well as as repetition to read again after the entire course
Course Outline (pdf): a 1-page descriptive list of the contents of the six weeks main study documents

Introduction to the course contents

  • TIC introduction video (1 minute): watch this first of all just to get started
  • Introduction to TIC audio summary (3 minute audio of the 1-page summary of the course introduction and the teacher, the hedge fund manager Karl-Mikael Syding)
  • 1-page introduction summary pdf document and practical assignment (course contents, skills taught, teacher Karl-Mikael Syding’s credentials etc.)

WEEK 1: Valuation Methods

  • TIC WEEK 1 video (1 minute): watch for a quick introduction to the week’s study material
  • WEEK 1 audio summary (4 minutes): audio version of the week’s 1-page summary
  • 1-page summary document of WEEK 1: description of the week’s main teachings, plus a practical assignment to apply an important aspect of the week’s ideas
  • WEEK 1 main document (26 pages): how is value defined and how can a valuation be conducted using several different methods?
  • Watch the Valuation and Forecasting segment of the LBS video 1, starting around the 1 hour mark
  • Watch the entire LBS video 2 (2 hours), that shows how to make forecasts for Meta Platforms using free online data
  • Briefly check out the Valuation Multiples Guide in Google Sheets, not for memorizing at this point, only to familiarize yourself with the idea that the same company can be assessed using many different key indicators
  • complementary material, study these one at a time, after reading the WEEK 1 main document and watching the referenced LBS videos
    • Video: keeping an investment diary
    • Video: Forecasting Fundamentals and Valuations
    • Video: The valuation model P=F x V
    • Video: 7 different investing disciplines
    • Spreadsheet: Quick and Dirty valuation model
    • Document: Summary of PROVEN analysis and investment workflow, and the Antiloop hedge fund equity investment methodology
    • Document: Who & What determines the stock market’s price discovery process? How does a market, with more or less eager buyers and sellers, actually operate? What makes a market, and what sets the price?

WEEK 2: Search & Screen

  • TIC WEEK 2 video: watch for a quick introduction to the week’s study material
  • WEEK 2 audio summary: audio version of the week’s 1-page summary
  • 1-page summary document of WEEK 2: description of the week’s main teachings, plus a practical assignment to apply an important aspect of the week’s ideas
  • WEEK 2 main document (9 pages): Methods for identifying inexpensive stocks through screening with combinatory filters
  • Video: Screening with FinViz, how to find new investment ideas
  • Video: Screening, more on screening for attractive shares

WEEK 3: Research & Forecasting

  • TIC WEEK 3 video: watch for a quick introduction to the week’s study material
  • WEEK 3 audio summary: audio version of the week’s 1-page summary
  • 1-page summary document of WEEK 3: description of the week’s main teachings, plus a practical assignment to apply an important aspect of the week’s ideas
  • WEEK 3 main document (28 pages): Reading annual reports, Financial spreadsheet modeling, Analyzing business models & Moats, Durability, Earnings risk, Qualitative forecasting
  • Video: Practical step-by-step investment concepts guide for a new investor, introduction to the Ouroboros neverending analysis process

WEEK 4: Investment Process & Timing

  • TIC WEEK 4 video: watch for a quick introduction to the week’s study material
  • WEEK 4 audio summary: audio version of the week’s 1-page summary
  • 1-page summary document of WEEK 4: description of the week’s main teachings, plus a practical assignment to apply an important aspect of the week’s ideas
  • WEEK 4 main document (26 pages): Investment timing techniques and tools. Check lists, Avoiding Mistakes, Macro factors, Technical Analysis, Leading indicators, Journaling (Investment Diary), TAOS investor traits & Psychology
  • Video: Overall Market Valuation Level as a macro factor
  • Document: Assessing a press release, what to focus on, how to read the market’s reaction to a press release, how to utilize over- and underreactions to news

Document: Making a Timeline, how and why to make a list of scheduled and likely future important micro and macro events affecting the fundamentals and valuations of a company

WEEK 5: Portfolio & Risk Management

  • TIC WEEK 5 video: watch for a quick introduction to the week’s study material
  • WEEK 5 audio summary: audio version of the week’s 1-page summary
  • 1-page summary document of WEEK 5: description of the week’s main teachings, plus a practical assignment to apply an important aspect of the week’s ideas
  • WEEK 5 main document (13 pages): Investment portfolio design and optimization. Risk/Reward, Investment Alternative Ranking, Portfolio Weight Schemes, Portfolio Optimization, Dynamic Rebalancing
  • Video: Diversification, how to design a portfolio with lower risk of permanent losses

WEEK 6: Case Study & Pitching

  • TIC WEEK 6 video: watch for a quick introduction to the week’s study material
  • WEEK 6 audio summary: audio version of the week’s 1-page summary
  • 1-page summary document of WEEK 6: description of the week’s main teachings, plus a practical assignment to apply an important aspect of the week’s ideas
  • WEEK 6 main document (18 pages): Tesla Case Study for London Business School, Pitching, Overview, Sanity Check & Case Plausibility, Course Overview and Summary

Summaries and repetition

  • Audio: TIC summary of introduction and week 1-6, i.e. a concise audio version summary of the entire TIC course teachings (24 minutes). Listen to this before and after the course, and ask yourself if you have grasped the fundamental ideas taught in each week as told in the audio file
  • Document: the seven 1-pager documents, with summaries of the course study material for the six weeks plus the course introduction
  • Folly of the herd: “real time” stock price narrative demonstrating the difficulty in keeping emotions like Fear & FOMO in check during strong trends and trend reversals in a stock’s price. This document can just as well be read before as after the course to get a feel for the vagaries of the market
  • Video: The Ouroboros infinite cycle of investing for finding companies, researching them, managing a portfolio and improving your finance skills
  • Video: 12 skills of investing (a summary of what you should now know how to do as an analyst and investor after the course)
  • Video: Cheat Sheet of sometimes counterintuitive key insights, pro memorias and investment skills valuable for an investor
  • Document: Investment lifecycle analysis, based on real-life investment success stories and failures (featuring Meta, Spotify, Twitter, ConocoPhillips and Occidental Petroleum)

Spreadsheet: the Valuation Multiples Guide that shows the mathematical relationships between various key indicators for one single company, such as the P/S, P/E and EV/EBITDA multiples.

Supplementary documents and on-line resources

  • LBS video sessions content description & timestamps for the London Business School videos 1-6: a guide to the 14h video footage from LBS
  • Google presentation slides accompanying the six LBS videos
  • Guide to on-line resources: a descriptive list for where to find and how to use a large number of useful free on-line resources for screening and researching companies
  • Investment from A to Z: a practical chronological run-through demonstrating how to Find, Analyze and Invest in a stock, using the online resources listed in the TIC Guide to online resources
  • The TIC Canon: a concise long format reading list and some other resources for intermediate investors
  • Spreadsheet: Range analysis, estimating a likely future share price range based on forecasts for respectively fundamentals and valuation levels
  • TAOS (63 pages): The Art Of Sprezzatura, 12 investing tips, traits and mindsets for success in life and finance

Other videos

  • LBS Q & A: How I started out as a finance professional, my view on macro research, etc.; pointers for how to get into a finance career and how to think in practice when investing in a certain macro environment, and more
  • Analyst hire: What I look for when interviewing a potential analyst for a position at a hedge fund (2 minutes), i.e., what you should strive to be good at to excel at a job interview
  • The London Business School Session full length videos 1-6: in total 14 hours of video from Syding’s 2022 lectures for students at LBS. These are referenced and linked throughout the TIC’s main documents.

You can find The Investing Course and apply to the waiting list here.


All publicly listed companies are totally lacking in one important respect

They all lack a focus on shareholder value.

Not a single company tells their shareholders and the general public what they are worth. And yet, many of them routinely buy back their own shares without even the slightest hint of the expected return on investment.

In my view it should be criminal to buy back shares without communicating clearly what the stocks are worth and showing simply and intuitively why that is. A company’s management is severely lacking in their fiduciary duty to their shareholders, when they buy back shares with no opinion or comment on their worth.

The average company is worth 1x Sales

Whenever a buyback program is suggested and decided upon, there should be a mandatory explanation of why the stocks are worth more to shareholders than investing in expanding the business, buying businesses, buying shares in other companies, or distributing a dividend. A share buyback program should among other things also state what the company’s stock is worth and at what price there is sufficient margin of safety to that value to warrant buying those shares.

A simple model for calculating the value of a company’s shares could be based on a few years of cash flows plus an end value, based on commonly accepted cash flow multiples for similar companies.

The price typically fluctuates between 0.5x Sales and 3x Sales

For example, given the company’s plans for sales, costs, margins, net working capital requirements and investments the coming few years, it’s easy to calculate the level of distributable free cash flow as well as the end point for the period in terms of sales, profits, assets and annual cash flow. At a certain achieved and expected growth rate for those business fundamentals, there are generally accepted valuation multiples (as can in practice be measured on average over previous cycles for similar businesses, or for the entire market if growth rates, profitability and cash conversion levels are similar to the average company). At the very least every publicly listed company that claims to focus on shareholder value should publish updated assessments of what that value is. In particular if the company plans to buy back its own shares.

A share buyback only adds value if the shares are bought below what they are actually worth. That means that the company needs to have a very clear view of what that value is. Further it should be communicated to its shareholders to help guide them to make better decisions on when to sell or buy shares in the company. In particular, the discussion and calculation of that value should follow clear and intuitive value based principles that have stood the test of time over many full economic cycles.

A company should calculate and publish

their best estimate of shareholder value

Over more than a hundred years of modern stock market history, the average company has on average been valued at around 15 times next year’s actual net earnings, or 16-17 times the most recently published actual earnings after tax. Another way to express that historical valuation norm is through the Price/Sales multiple which has been a very convenient 1.0. Averages are averages, however, and very few companies can singlehandedly represent the 500 constituents of the S&P 500 index. But in as much as a company exhibits characteristics similar to the index average, it can be expected on average over a cycle to be valued at 1x Sales and 15x earnings.

Whenever an investor has bought the index at approximately an 15x/1x valuation (“15x”) they have achieved a total compound average annual return (“CAGR”) of 10% – a fair compensation for giving up one’s liquidity, forsaking other investments and consumption, as well as taking the risk that valuations are cyclically lower than average when the money is needed. The average valuation of “15” is an average, sometimes 10x normalized net earnings, sometimes 20x.

It’s not a question of crystal ball forecasts of a likely share price trajectory

but of a best estimate based on time tested fundamental value principles

Due to the cyclicality of profit margins and accounting trends, it’s easier to use the much more stable and reliable P/S multiple. On average an investor has always received 10% CAGR over the coming 25 years (usually over the coming 10 years) when buying the index at the historical valuation average of 1x sales. Buying at distressed low points of 0.5x have yielded 20% CAGR over 10-15-20 years, while buying at very optimistic 2-3x sales have yielded zero total return over the coming decade.

It’s easy: your stock is worth 15x the next 4 quarters of normalized net earnings,

adjusted for business divergencies from the index average

Using these benchmarks makes it easy, albeit not infallible, for a company to establish a likely pretty narrow warranted valuation range for its business and its shares. This value should be stated very clearly on every company publication. If they deem it too difficult to calculate, they should not be allowed to buy back shares, or talk about targeting shareholder value. They can’t target what they have no idea what it is.

The shares 5 years from now will be worth 15x the earnings 6 years from now

(i.e. 15x next year’s earnings)

[normalized , as always; use P/S instead if normalizing earnings is too hard]

The value today is the sum of surplus cash flow over five years plus the end value

(all properly discounted to today, of course)

[and adjusted for differences vs the index average]