This top tech company has done a wonderful job rewarding shareholders in the past.
There’s no denying that Alphabet (GOOGL -1.48%) (GOOG -1.57%) has been one of the best businesses that investors could’ve owned historically. Since its initial public offering in August 2004, shares have skyrocketed 6,300%. This means that a $15,000 investment back then would be worth a little over $400,000 today.
But if you missed the boat, you’re probably wondering if a repeat performance is on the horizon. Could this “Magnificent Seven” stock help you one day become a millionaire?
A dominant internet company
From its founding in 1998 to today, Alphabet has become one of the world’s leading tech enterprises. It owns popular internet properties that are used by hundreds of millions and even billions of people on a daily basis, including its search engine, Gmail, Maps, and YouTube.
The advent of artificial intelligence (AI) has many people thinking that disruptions will happen to Alphabet’s dominance, particularly when it comes to Google Search, the company’s crown jewel segment. If AI tools can create answers to queries, then perhaps people won’t need to scroll through links to find what they’re looking for, something that could undermine Alphabet’s ad business.
But there’s no reason for investors to worry about Search losing its leading industry position anytime soon. It’s likely to still be the main way that people access information years from now. And that usage will keep Alphabet as one of the top digital advertising businesses on the planet. For what it’s worth, Google Search still has a 91% share of the global search market.
Outstanding fundamentals
Alphabet generated $307 billion in revenue in 2023. That’s a gargantuan sum that makes this one of the largest companies out there. But investors should know that growth is still a key part of the story. Sales last year were up 9%, versus 2022, and 125% higher than in 2018.
Between 2023 and 2026, consensus analyst estimates call for revenue to rise at a compound annual growth rate (CAGR) of 11.4%. That would be a wonderful outcome, driven by growth in the digital ad, cloud computing, and streaming markets, and Alphabet has a strong presence in all of them.
Investors will be happy to know that this is a financially sound business. There’s no problem when it comes to generating profits, as Alphabet’s operating margin has averaged a superb 26.2% in the last five years. Thanks to cost-cutting measures, the Q1 2024 margin is up meaningfully from the year-ago period.
In addition to the strong bottom line, Alphabet’s balance sheet also reduces financial risk. This is something that should be prioritized when looking for long-term investment candidates.
As of March 31, the business had $13 billion of long-term debt on the books. That might seem like a lot on its own, but when compared to the company’s cash, cash equivalents, and marketable securities of $108 billion, it’s clear that Alphabet is in pristine financial shape. There are no reasons to worry that the business will ever run into trouble on that front.
Return potential
To be clear, investors shouldn’t expect forward returns to come anywhere close to resembling the past. Alphabet is a more mature company these days than in its early days, so naturally, its expansionary runway isn’t as large.
However, this is still a smart stock to buy, especially since it trades at a compelling forward price-to-earnings ratio of 23.7. Investors who are able to put in a lot more capital upfront when buying shares have a greater shot at becoming millionaires from Alphabet. Additionally, it helps if you have a much longer time horizon, as this helps allow the power of compounding to work.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.