If you invested $1 in Alphabet in 2004, you would have earned this much today.

When I was an internet giant alphabet (Google 0.02%) (GOOG 0.05%) When the company went public in 2004, it didn’t have the monopoly on Internet search that it does today. True, the company still had a market share of 44%, from 35%, but few expected that it would become the huge company it is today. Currently, more than 90% of his searches use Google, his website that is the most visited in the world.

Every dollar invested in Alphabet’s IPO is worth $55 today. Its 55x return over 20 years dwarfs the comparable performance of the broader stock market.

Some features remain, such as Google Search, but Alphabet is a different company than it was back then. And the future is likely to be a different type of investment.

Had they been acquired by Alphabet early on, they could have easily built a successful investment portfolio. Does Alphabet still have the capacity to manage its portfolio? Here’s what you need to know:

An all-time high of $1.65 billion?

Search engines alone have never made Alphabet such a great investment. Its success stemmed from perhaps the most spectacular acquisition in corporate history. Alphabet plowed his $1.65 billion into the stock to acquire video platform YouTube in late 2006. At the time, the company was less than two years old, but Alphabet saw something special, and they were right.

YouTube is currently the second most visited website in the world. The company generated nearly $8 billion in YouTube ad revenue in its most recently reported quarter. Based on this total, Alphabet can effectively recover its initial investment in YouTube. every 3 weeks.

GOOGL Revenue (TTM) Data by YCharts

The combination of Google and YouTube has turned Alphabet into a cash-printing machine that sells advertising to companies that want to reach the largest internet audience. Alphabet, which has raked in about $78 billion in free cash flow over the past year, has the ability to invest in new opportunities, fend off potential threats (or make acquisitions) or capitalize on profits (through stock buybacks). It’s a tech giant with deep pockets that can cannibalize its own stock to boost its stock. growth.

Another investment today

Every company goes through phases of faster and slower growth, but in general, the higher the numbers, the harder it is to grow. With annual revenues reaching nearly $300 billion, we can see that phenomenon currently affecting Alphabet (see graph below). Alphabet isn’t the hyper-growth stock it was a few years ago. Therefore, the return on investment will not be the same as in the past.

But that doesn’t mean Alphabet still can’t lock in its long-term portfolio.

GOOGL Revenue (YoY Annual Growth Rate) Data by YCharts

The company is still investing its profits in growth. It built a cloud platform and launched software for mobile devices (Android), office software (Google Workspace), and generative AI (Gemini) comparable to ChatGPT.

However, they make so much money that they end up with a lot left over. Alphabet currently has a whopping $120 billion in cash on its balance sheet, compared to just $12 billion in debt. The stock doesn’t pay a dividend, but management has begun buying back its own shares instead. The number of shares outstanding has declined by 10% over the past five years, and shareholders should expect this situation to continue. Alphabet spent $60 billion on stock buybacks in the past year alone.

Is Alphabet stock worth buying?

Alphabet is a popular stock on Wall Street and is a member of the Magnificent Seven, a handful of mega-cap tech stocks that rose sharply in 2023. The stock price has increased 55% in the past 12 months.

Thanks to Alphabet’s aggressive stock buybacks, the company’s growth prospects look promising. Analysts believe the company could earn compound returns of more than 17% annually over the long term.

Currently trading at a P/E ratio of nearly 27x, the stock is not as cheap as it was before the 2023 rally. But Alphabet’s higher valuation could be justified if it can achieve growth in line with analysts’ expectations. Its current PEG ratio of 1.5 is reasonable for one of the world’s strongest companies.

GOOGL EPS LT Growth Forecast Data by YCharts

That doesn’t mean the stock price won’t be volatile along the way. If you really want to buy Alphabet, consider a dollar-cost averaging strategy. Buy stocks piecemeal to take advantage of market ups and downs, but leave some dry powder in case the stock drops to a more attractive valuation in the future.