The FASTEST and SIMPLEST way to calculate the valuation of Google

1. Conensus EPS in 2022 from Yahoo Finance

(source: https://finance.yahoo.com/quote/GOOG/analysis?p=GOOG)

According to Yahoo Finance, the concensus EPS in 2022 is 95.1. Now, we need to figure out which multiple to apply. In this post, we are going to use P/E multiple.

2. Pick three P/E Multiple

(source: https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/pe-ratio)

This is the chart of P/E Ratio of past three years. The minimum P/E Ratio was 21, and the maximum P/E Ratio was 37. And, we are going to add one more P/E Ratio, and this value will be the Average P/E Ratio of similar companies such as AAPL, AMZN, and MS, which is 32.

3-1. Calculating the Target Price with P/E multiple

With the consensus EPS (2022), we can calculate the range of the target price, which spans from $ 1,997.19 to $3,518.70

• This is probably not the best method because the range of target prices is fairly large. But the range itself is pretty reasonable.

3-2. Checking if your Target Price is appropriate

Let's say your entry price for Google is $2,000 and your target profit is 35%, which makes your target price $2,700.

From Step 1, we know that 2022 Consensus EPS is $ 95.1, so we could calculate P/E Multiple by dividing the Target Price by Consensus EPS. $2,700/$95.1 = 28

From earlier, we also know that the Average P/E Ratio(32) of similar companies and the arbitrary P/E multiples we selected from Step 3(Min: 21, Max: 37).

Since our implied P/E Multiple - 28 - is fairly close with the other P/E Multiple values from earlier steps, we can conclude that $2,700 is a reasonable target price.