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Markets · Investing · Business
Finance
Alphabet's Net Income Doesn't Matter Right Now. Follow This Metric Instead.
One GAAP rule has made Alphabet's net income an unreliable gauge of the stock's intrinsic value.
Net income is one of the best ways to value a company. It's the metric people use to determine a company's price-to-earnings ratio (P/E) and whether its operations are sustainable. However, Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) has become an exception.
The stock currently trades at a 16 P/E after investors were concerned about rising capital expenditures. Taking this ratio at face value can cause investors to think that Alphabet is far more undervalued than it actually is. Investors should focus on net operating income instead if they want the full picture on how the business is doing.
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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Data may be delayed up to 15 minutes. Past performance is not indicative of future results. Consult a licensed financial advisor before making investment decisions.
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