Key Takeaways:
- The 2-Minute Valuation Model values Google at $261/share in 2 years.
- This implies that the stock has over 35% upside from its current share price.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
Google has been a capital-compounding stock for investors, returning 18.7% per year over the past 20 years:
Today, Google is a wide-moat, high-quality business, and the stock seems slightly undervalued. This could be an excellent stock to buy at the right price in 2025.
What is the 2-Minute Valuation Model?
There are 3 core factors that drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
The 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized EPS, and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Google Looks Undervalued
Forecast
On Google’s Analyst Estimates tab shown below, you can see analysts expect the company to grow revenue at an 11.1% compound annual growth rate over the next 3 years, with normalized earnings per share, or EPS, expected to grow slightly faster with an additional contribution from share buybacks:
View Google’s full analyst estimates >>>
For context, over the past 5 years, Google’s revenue grew at a 16.7% CAGR.
Valuation Multiple
Google currently trades at around $190 per share, which means the stock trades at around 6 times next year’s expected revenue and just over 20 times next year’s expected earnings.
This is a lower multiple than the stock has seen in the past.
Google has averaged a 24x forward P/E multiple over the past 5 years:
Value stocks quicker with TIKR >>>
We’ll use a 22x forward P/E ratio in our valuation to be a bit more conservative.
Fair Value
3 years from now, Google is expected to reach about $11.78 in normalized EPS. At a 22x NTM P/E multiple, that values Google stock in 2 years at $259/share.
We can tack on an extra $2 per share for the dividends that Google is expected to pay over the next 2 years, bringing the final fair value to 261 dollars per share.
The NTM P/E multiple uses the next twelve months’ expected earnings, so a 2-year valuation uses 3-year EPS forecast figures.
With the stock trading at about $190 today, this implies that Google stock could rise 17.2% per year over the next 2 years, or 37% in total, to reach this fair value:
Analysts also think Google stock is fairly undervalued.
Find the best stocks to buy today with TIKR >>>
Analysts’ Price Target
The consensus analyst price target for Google today is about $210 per share, which means analysts think the stock has a hair over 10% upside.
That doesn’t sound very promising, but when you consider that Google is a Magnificent 7 stock with a wide moat and consistent, double-digit earnings growth, it makes the stock much more exciting.
You can see that analysts thought Google was undervalued towards the end of 2022 and into 2023, and this turned out to be accurate. Analysts still think the stock has about 10% upside today:
Analysts’ price targets can suffer from many biases and aren’t always accurate.
Still, looking at analysts’ consensus price targets can be a great way to get a “second opinion” on your own stock valuation.
TIKR Takeaway
Based on the 2-Minute Valuation Model, it looks like Google stock is slightly undervalued today, and the stock could go up over 35% in the next 2 years.
Don’t take our word for it—try it out for yourself! Analyze Google or any stock you’re interested in on TIKR today!
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
