Google’s parent company, Alphabet (NASDAQ: GOOGL) is synonymous with excellent returns. It’s been able to outperform the S&P 500 on almost every time horizon. So, how much would I have now if I’d invested £1,000 in Alphabet stock five years ago?
Alphabet Class A vs Class C Stock
Like many other companies, it possesses different types of stock. It makes both its Class A and Class C stocks available to trade on the public stock market. So, what distinguishes one from the other?
Well, the two stocks actually trade at separate price levels. However, they trade in tandem with each other and usually aren’t more than 1% apart. The main distinction though, is that Alphabet Class A stock holds voting rights and an ownership stake of the company, while Class C stock just gives shareholders the latter. It’s for that reason that I opted to purchase the conglomerate’s Class A stock.
Therefore, if I’d invested in Class A stock five years ago, I’d have a return of 94%. Meanwhile, I’d have a return of 99% if I’d invested in Class C stock. This is what it would translate to in real income, inclusive of exchange rates and excluding broker fees and capital gains tax.
Stock/Metrics
Class A
Class C
Amount invested
£1,000
£1,000
Post-conversion to USD
$1,319.50
$1,319.50
Growth
93.61%
98.67%
5-year return
$2554.68
$2621.45
Post-conversion to GBP
£2,304.32
£2,364.55
Alphabet stock’s five-year return
As we can see, although the growth of Alphabet stock was approximately 95%, investing over five years ago would have more than doubled my investment. That’s because of the impact of a weak pound and strong dollar today. If we’re to compare this to the performance of the US’s three main indexes, Alphabet still outperforms by quite some margin.
Index/Metrics
Dow Jones
S&P 500
Nasdaq
Amount invested
£1,000
£1,000
£1,000
Post-conversion to USD
$1,319.50
$1,319.50
$1,319.50
Growth
27.72%
40.10%
57.70%
5-year return
$1,685.27
$1,848.62
$2,080.85
Post-conversion to GBP
£1,520.11
£1,667.46
£1,876.93
US indexes’ 5-year return
Stay invested?
What about the future then? Well, given the sector the Nasdaq-listed company operates in, technology remains a key driver for the future of society. As such, I expect Alphabet stock to continue growing in the coming years.
The tech firm will be reporting its Q3 results later this month, which is a key event I’ll be paying close attention to. That being said, the stock has been performing rather poorly this year. This is due to bear market conditions as a result of high inflation and rising interest rates, sparking fears of a recession. Nonetheless, here are its earnings estimates going into its Q3 earnings release.
Metrics
Amount (Q3 2021)
Earnings estimates (Q3 2022)
Total revenue
$65.12bn
$70.92bn
Diluted earnings per share (EPS)
$1.40
$1.27
Source: Financial Times
Stocking up
Having said that, will I continue to buy Alphabet stock? Well, for starters, the tech company has an immaculate balance sheet, with a stellar debt-to-equity ratio of 5%. Not to mention, the firm has an excellent history of growing its top and bottom lines, as well as maximising its return on equity (28.2% vs the wider industry’s 7%). Additionally, its healthy profit margin of 25.9% just goes to show that Alphabet is capable of churning out quality earnings, even in times of difficulty.
Data Source: Alphabet Investor Relations
Although past performance is no indicator for future returns, the company has a lot going for it. Being the world’s go-to home for search and video, while having an arsenal of growth prospects in cloud, autonomous driving, and AI, Alphabet has attributes of both a defensive and growth stock. It’s for those reasons that I’ll be using the current bear market as an opportunity to hopefully continue growing my wealth by purchasing more Alphabet stock.
The post If I’d invested £1,000 in Alphabet stock 5 years ago, here’s how much I’d have now appeared first on The Motley Fool UK.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Choong has positions in Alphabet (A shares). The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.