Valens Research Weekly Equity Idea Highlight for February 14, 2018 – Alphabet, Inc.

This week the Valens Securities team highlights our most interesting equity insight from across our tools and our analysis.

Management focus on maintaining ROA’ and confidence about driving growth mean market expectations for ROA’ declines are too pessimistic and the company is undervalued

GOOGL has seen steady UAFRS-based (Uniform) ROA decline from 100%+ to 30% over the past 15 years as the company has aggressively invested to grow the business and their cash flow streams. Markets expect Uniform ROA (ROA’) to continue declining over the next five years, approaching 20% by 2021. Moreover, Uniform Asset growth is expected to be at the lower end of historical levels, at 15% a year. Analysts appear to realize this fade has stopped, expecting Uniform ROA to remain stable around 28%-30% levels the next two years. Considering fundamental signals about the business, analyst expectations appear far more reasonable than market pessimistic expectations.