Valuation Analysis: Is GOOG Undervalued?

To assess whether GOOG is undervalued, let’s examine key valuation metrics and compare them to historical averages, peers, and the broader market:

Price-to-Earnings (P/E) Ratio:

Trailing Twelve Months (TTM) P/E: 18.89, significantly lower than Alphabet’s 10-year average of 25.88.

Forward P/E (2026 estimates): Approximately 16.5, suggesting the stock is priced at a discount relative to expected earnings.

Peer Comparison: Compared to other “Magnificent 7” tech companies (e.g., Apple, Microsoft, Meta), Alphabet’s P/E is notably lower. For instance, Microsoft’s TTM P/E is around 35, and Apple’s is approximately 30, indicating Alphabet trades at a discount relative to its peers.

Price-to-Sales (P/S) Ratio:

Current P/S: Approximately 6, which is reasonable for a tech giant with strong revenue growth.

This is lower than some peers like Meta (P/S 8) but higher than Amazon (3.5), suggesting Alphabet is not excessively priced relative to its revenue.

Enterprise Value-to-EBITDA (EV/EBITDA):

Forward EV/EBITDA: 11.8, considered attractive for a company with Alphabet’s profitability and growth.

This is lower than the tech sector average, which often exceeds 15 for growth companies.

Intrinsic Value Estimate:

Using a Discounted Cash Flow (DCF) model, analysts estimate GOOG’s intrinsic value at around $160.04 under a base case scenario, compared to its current market price of $167.73 (as of June 22, 2025). This suggests the stock is slightly overvalued by ~3%.

However, other analyses, factoring in Alphabet’s AI and cloud growth, suggest a 29% upside potential, with price targets ranging from $159 to $262.50, averaging $200.66 (a 20.42–22.63% increase).

Conclusion on Valuation: Alphabet’s P/E and EV/EBITDA ratios are lower than historical and peer averages, suggesting it is undervalued relative to its earnings and cash flow potential. While DCF models show slight overvaluation at current prices, analyst price targets and growth prospects indicate significant upside, especially compared to other mega-cap tech stocks.