Cramer: How to find growth plays like Alphabet

Jim Cramer knows a lot of investors wish they could go back in time and buy Alphabet, or Google, back when it traded at a much lower valuation.

“Guess what, you had the opportunity not all that long ago,” the “Mad Money” host said.

In July 2015 Alphabet traded at just 17 times earnings, the same multiple as the average stock of the S&P 500, back when the stock was at $541. Since that time it has rallied 45 percent.

Yet back in July many investors thought that the stock was outrageously expensive. But in Cramer’s perspective — that is exactly what makes a great growth stock.

“Such is the life of a tremendous growth stock that turns out to be much cheaper than you believed because the earnings estimates were way too low and the business was accelerating when people feared it was tailing off,” Cramer said.

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It was exactly the combination of accelerated revenue growth and cutting back expenses that allowed Alphabet to blow away the estimates. And when it reported, it was clear to Cramer that the stock was actually very cheap last summer when everyone thought it was hideously expensive.

“The really great growth stocks out there always look ridiculously expensive before we see the earnings in the out-years,” Cramer said.

Google’s business is now firing on all cylinders, including cylinders that Cramer didn’t even know existed. The stock is not immune to the marketwide sell-off, but Cramer does think this is exactly the type of high-quality growth stock that can be confidently bought on its way down in any weakness.

“It should be at the top of your shopping list,” Cramer said.