Google Inc , stock has had a nervous past couple of months. The uncertainty in the markets led to shares being stuck in a range. Investors are confused. What if the market goes into a full-on sell-off mode? Will it then be worth holding on to the stock?
Random market fluctuations are beyond the control of any investor. All they can do is focus on the long-term business prospects of a firm. And if you look at Google with a 5-year horizon, there seems to be plenty of upside left in the stock. An ideal buy on dips candidate.
Google Inc’s Huge Competitive Advantage
The most important factor to look at while considering any long-term equity investment has to be the firm’s competitive strength. It helps insure the company’s revenue and cash flows from rivals. Fortunately, Google Inc is the undisputed king in its segment.
The brand is so powerful that almost everyone uses the expression “to google” as a synonym for searching online information. And not just the search engine, Google also owns some other highly valuable assets. YouTube, Chrome, Android and Google Maps each have over a billion users. No doubt with such a huge customer base, it is the number one advertising choice.
eMarketer projects Google will retain 55 percent of the industry’s revenue in 2015. And the way things stand, with scale and reach, it will be hard to eat into that revenue share.
Google is a Cash Machine
Google Inc ‘s profitability is simply awesome. In the past 12 months, the firm generated a massive $17.4 billion in operating income, or close to 25 percent of its revenue. Add to that an operating cash flow of $26 billion and free cash flow of $14.5 billion, and you have a company that just doesn’t know what to do with all that money!
Of course, such an exceptional profitability means that Google trades at a premium. The stock currently is at about 30 times trailing 12-months GAAP earnings, and about 22 times the consensus 2015 non-GAAP earnings. However, don’t let that premium valuation deter you from entering into the stock. The price is high, but it comes with incredible profitability and huge room to grow.
Google Inc’s Exciting New Ventures Will Drive Future Growth
Google Inc ‘s balance sheet is solid and its core advertising business is strong, but the most exciting reasons to own the stock is its “moonshot” initiatives.
The list of such ambitious projects is too long to encapsulate in a single article. Just a sample. Google had acquired eight robotics firms in just six months in late 2013. The company later acknowledged that one of reasons behind those acquisitions is to create delivery robots to carry packages from its own self-driving cars!
These “moonshot” initiatives are the very essence of Google Inc the company – making the world better through technology. Obviously, not every one of them will be successful from a financial standpoint. You need just one or two to transform the face of the company.