Stephen Wright thinks there’s a FTSE 250 company that’s a better business than Alphabet. And its shares are trading at a better price.
I believe there is a company listed on the FTSE 250 that might be a better investment than Alphabet (NASDAQ:GOOG). It trades at a more appealing price, has smaller capital requirements, and superior profitability measures.
I do not in the slightest suggest that the parent firm of Google is not a fantastic business. However, I believe that there is now a better deal on a UK stock.
Alphabet
It is undeniable, in my opinion, that Alphabet is among the greatest corporations in the world. It may or may not be comparable to Apple, Tesla, or Berkshire Hathway, but it is on level with them.
In addition, I firmly think that the quality of the underlying business is what makes a fantastic investment. Getting a good deal is not nearly as crucial as finding a quality company.
I believe that there are three key components that define what makes Alphabet a great company. These include (i) its robust cash flow, (ii) its remarkable expansion, and (iii) its leading position in the market.
However, I believe there is a FTSE 250 business that can compete with Google’s parent firm in each of these categories. Additionally, it trades for a higher price.
Cash generation
Games Workshop is the stock (LSE:GAW). Examining the qualifications of the toy firm in more detail uncovers some quite outstanding profitability.
Firstly, Google’s margins are lower than those of the FTSE 250 business. Games Workshop attains operational margins of 36% (compared to 26%) and gross margins of 68% (compared to 55%).
Additionally, fixed asset returns are greater. While Google makes $75 billion with $127 billion in fixed assets (a 59% return), Games Workshop makes £170 million with £105 million in fixed assets (a 161% return).
Finally, free cash flow accounts for 85% of the revenue that Games Workshop makes from its activities. This contrasts well with Alphabet’s 71% conversion percentage.
Growth and intangibles
Alphabet’s dominating market position provides strong protection for its primary operation, Google Search. This is undoubtedly a contributing factor to its success as a business.
However, Games Workshop’s primary business is similarly well-protected. Because of its intellectual property rights, rivals can hardly replicate what it does.
Both firms have had remarkable growth during the past five years. Indeed, Games Workshop and Alphabet have both had average annual increase in earnings per share of 15%.
I believe that the main concern for Games Workshop’s investors is whether or not the business can continue in this manner. The largest danger is that, but given the company’s size, it may be able to continue.
A stock to buy?
To be clear, I’m not criticizing Alphabet in this post. The business has remarkable profitability numbers, and it may have a distinct competitive advantage.
From a financial standpoint, however, I think Games Workshop could be at least as excellent, if not better. Additionally, the price-to-earnings (P/E) ratio of the company is 24 as opposed to Alphabet shares’ 30.
This simplifies the investing equation, in my opinion. As of right now, I believe Alphabet is a far less appealing stock to purchase than Games Workshop.
