Go Google! Alphabet joins Amazon in $1,000 club


Google's concept car (operating system)

Google the great! Shares of the online advertising giant’s parent company Alphabet hit a new record high above $1,000 on Monday.

The Google/Alphabet milestone comes one week after Amazon’s (AMZN, Tech30) stock also joined the four-digit stock price club.

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Alphabet stock is up more than 25% this year. The company’s market value is now about $680 billion, second only to Apple (AAPL, Tech30), which is worth more than $800 billion.

The success is largely due to the continued dominance of the Google search engine — and the ad dollars that come with that. The company is expected to report sales of nearly $108 billion this year.

But YouTube and Android are also generating more sales and profits for the company too.

Alphabet also has several other bets — companies like driverless car tech firm Waymo, Fiber and connected device maker Nest — that are starting to kick in more revenue too.

The success of Google has made its two co-founders extremely rich. Larry Page, who is also Alphabet’s CEO, and Sergey Brin are each worth nearly $50 billion, according to wealth trackers on Forbes and Bloomberg.

Related: Is Google’s Waymo driverless car unit really worth more than GM, Tesla and Uber?

So is the $1,000 mark for Google and Amazon really that significant? Not really — even though membership in the quadruple digit stock crowd is pretty exclusive. Priceline (PCLN, Tech30) is the only other stock in the S&P 500 with a price above $1,000.

But there’s another company in that blue chip index that’s approaching quadruple digits. Robot medical equipment maker Intuitive Surgical (ISRG) is trading around $920.

The real measure of whether a stock is expensive or a bargain is its price-to-earnings ratio, not its stock price.

And on that basis, Alphabet is still reasonably valued, if not exactly cheap. It trades for about 25 times 2018 earnings forecasts.

google amazon stock 1000
The two tech giants are in an exclusive club of stocks that have topped the four-digit mark.

Amazon, on the other hand, is trading at about 90 times earnings estimates for next year, much higher than the overall market, as well as other tech titans like Apple, Microsoft (MSFT, Tech30) and Facebook (FB, Tech30).

The main reason that the share prices of both Alphabet and Amazon have gotten to these levels is that neither company is a fan of stock splits.

Related: New Nest camera zooms in and recognizes faces

When a company splits its stock, it issues more shares to existing investors. For example, if you owned 100 shares of a stock trading at $100 and the company decided to split its stock 4 for 1, you’d wind up with 400 shares at a price of $25 each.

Amazon has not done a stock split since 1999, while Alphabet did one split in 2014, creating two classes of stock in the process.

If either company ever hopes to make it into the exclusive group of 30 stocks in the Dow Jones Industrial Average though, they probably would have to split their stock.

That’s because the Dow is a price-weighted average. Having one stock with such a high price would give it an outsized influence on its overall value.

But some companies are content to rarely, if ever, split. Just look at Warren Buffett’s Berkshire Hathaway.

While Berkshire does have “cheaper” B shares (BRKB) that average investors can afford — they currently trade at about $166 — the A shares (BRKA) have never split. And if you want to buy one of those, be prepared to shell out nearly a quarter of a million dollars.

CNNMoney (New York) First published June 5, 2017: 10:00 AM ET


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