Alphabet Inc.’s (GOOG) strong Q1 free cash flow (FCF) has investors taking notice, with analysts projecting a significant increase in revenue and FCF margins over the next 12 months. This boost in FCF has led to an estimated 19% higher valuation for the stock, currently trading at $212 per share.
The company’s ability to generate strong FCF despite increased capital expenditure on AI-driven projects is a positive sign for investors. In Q1, Alphabet spent 47.5% of its revenue on capital expenditures, but still managed to report a net cash balance of $13.8 billion. This suggests the company has a solid financial foundation and is well-positioned for future growth.
Analysts are also bullish on Alphabet’s prospects, with an average price target of $199.62 per share, representing a 12% increase from Friday’s close. However, investors can profit from this optimism by selling short one-month out-of-the-money (OTM) put options. This strategy allows them to set a lower breakeven point and generate extra income.
For example, selling short OTM puts with an exercise price of $170 could result in a yield of over 1.5% per month. Existing shareholders can also benefit from this strategy by continuously selling short OTM puts every month. This approach provides downside protection while allowing investors to capture the upside potential of the stock.
While there is no guarantee that Alphabet’s stock will continue to rise, the company’s strong Q1 FCF and bullish analyst estimates make it an attractive investment opportunity. By selling short OTM puts, investors can profit from this optimism while managing their risk.
Source: https://www.barchart.com/story/news/33109574/alphabet-s-strong-free-cash-flow-makes-goog-stock-a-value-buy