Apple stock at cheapest level of Steve Jobs era

New Parallels Desktop 5 for Mac. $15 discount!“Investors dream about finding obvious disconnects. Widespread misunderstanding leads to huge opportunity. We have such a scenario developing with Apple,” Jason Schwarz writes for Seeking Alpha. “Although Apple is the most widely followed stock on Wall Street it is clearly the most misunderstood.”

MacDailyNews Take: An aside: Think about AAPL ten years ago. “Most widely followed stock on Wall Street” it was not. It’s amazing how far Apple has come!

Schwarz continues, “The current perception among traders is that Apple is expensive because of its 150% rally off of the March 2009 lows. Seriously, if I polled 1000 traders I believe that 95% of them would look at the 33 p/e ratio on their screens and tell me that they’d love to own Apple but it is just too expensive. What they don’t know, is that the 33 P/E is about to drop significantly and will set up the opportunity of 2010.”

“Since 2003, Apple has consistently traded at an average P/E ratio of 32.17 which is consistent with today’s current P/E of 33. You can tell that traders have done their homework and are strict followers of the P/E valuation. If you’re like me, you don’t care too much about current P/E ratios because they are calculated from past results. The number that really matters is the forward P/E ratio because it is calculated from future estimated earnings,” Schwarz writes.

“Well, the average forward P/E ratio for Apple since 2003 is 22.48. Any guesses what it is now? Based on the new accounting rules soon to be put in place, and the 37 billion in cash that Apple has on their books, Apple’s forward P/E is below 13,” Schwarz writes. “This stock has not been priced this cheaply since Steve Jobs came back to Apple in 1997.”

“Based on expected earnings per share of only $11.70 in fiscal 2010 (many think earnings per share according to the new accounting standard will end up closer to $13) the stock should be priced at $263 today and should reach $376 by September 30, 2010. These prices do not reflect great years for Apple, they simply reflect the averages,” Schwarz writes. “You want to know what a great year would look like on September 30, 2010? Let’s use the P/E ratio from just before the recession began in 2007. With the iPhone added to the Mac and iPod lines, Apple stock was soaring. Its forward P/E was 28.63 and its current P/E on September 30th 2007 was 39.05. If we used those ratios in 2010 it would put Apple stock at $456 by the close of its fiscal year on September 30th.”

Full article here.

[Thanks to MacDailyNews Reader “Mike in Helsinki” for the heads up.]

30 Comments

  1. Be sure to check your history here. It is time to sell AAPL. AAPL always crashes right after a major Apple Event and product announcement. Apple will hit $150 before it hits $250.

    You can always buy it back in March.

  2. Okay, if you don’t believe me, it’s your money. But Go check out Dec. 06-Jan 07. Right about the time the iPhone was announced. Rumors of a magic phone had pushed the price to $95. Then SJ announced the iPhone and by February the stock crashed to ~$50. Here is how this works. AAPL’s price has been rising, not because Apple is doing better, but because huge hedge funds are buying up lots of AAPL. Then, when SJ announces the iTablet, there is going to be a selling race among the funds. THe Hedge Fund that sells the most shares the fastest, wins. This crashes the price of the stock. Sell your AAPL. Again, you can always buy it back in March.

    I know because I owned AAPL then. You should always invest for education. Any time you invest money, you should learn from your investment. That month I learned about a concept known as “Short Selling”.

  3. Dallasm is correct.

    In the past this always baffled me. But lately this reaction to apple earning reports and announcements hasn’t happened.

    I will play it safe, 1/2 of my investment in now, and 1/2 later if it does drop after the announcements. I can put the other 1/2 in during any future pull back.

  4. @Dallasm,

    fact is, if you had held on to your stock back then until today, it would have been worth twice as much as when you shorted it.

    I’ve had Apple stock since 2005, and have made back roughly six times my initial investment, exactly because I didn’t panic or play the short game.

    Sure, hedge funds have manipulated Apple’s stock for years, but it has always bounced back. Fact is, even if the rumored-but-not-yet-announced tablet initially sells poorly against expectations, the rest of Apple’s business -particularly its Mac and iPhone businesses- is solid, making Apple a good stock to invest in.

  5. I think I’ll buy some AAPL. Just this disclosure – every time I buy stock, the price plummets. Every time. I have a long history of this phenomena.

    Things like P/E ratio, great products, great retail store crowds, or even great hoards of cash don’t matter at all.

    So, either stop me while you can (I won’t make the move until noon CST), or short some AAPL now.

  6. @gzero

    No, no. You misunderstood me. AAPL is an excellent long term stock. It will hit $250, and probably this year. But if you sell now, you will be able to buy it back in March for $150. If you have Three AAPL stocks now, in March you’ll be able to buy Four. And then hold onto them for another peak. That’s what it means to buy low/sell high.

    Don’t get married to an investment. Know when it is time to sell. If you are married to an investment, you are going to get burned. That is how you learn to play the game.

  7. I have to agree with Dallism as well.

    gzero is right, too, you can make more money by riding out the turbulence, but Jason Schwartz is clearly taking a short view of Apple stock. Apple doesn’t even predict the kind of wild earnings growth that Schwartz suggests. Apple realizes that there are external forces (competition, macroeconomy, etc) that will push earnings down from the theoretical highs that Schwartz wants us to believe.

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