“Much has been written regarding Apple’s (AAPL) valuation, which appears incredibly cheap when you examine the multiples and think about power of Apple’s balance sheet,” Adam Muller writes for Seeking Alpha.
“Apple had over $81 billion of cash on its balance sheet as of its September quarter-end. Apple’s cash balance will likely top $90 billion when the company reports its December quarter on January 24,” Muller writes. “By the end of 2012, if there is no change in policy (i.e. no dividend put in place), Apple will have well over $100 billion in cash.”
“Given Apple’s incredible growth trajectory, it should demand a larger multiple. Even a multiple of 12x fiscal 2012 earnings seems too low, but if applied ex-cash it would imply a stock price in excess of $525/share (12 times $35.15 of earnings plus $105 of cash per share),” Muller writes. “This is a 25% premium to where the stock is trading today. Further, I believe the Wall Street consensus number is conservative.”
“It may be that they are psychological constrained by Apple’s size and cannot bring themselves to think about earnings of $60 per share times a 14 multiple, which implies $840 per share (without adding in cash), and an almost $800 billion market capitalization,” Muller writes. “Will Apple get there? It’s difficult to say, but it’s easy to say that at $420 a share with a multiple less than 10x Apple is cheap.”
Read more in the full article here.
Simpletons deserve to get their asses handed to them on a platter.
+1
“with a multiple less than 10x Apple is cheap.”
Tell that to the buyers of knock off ‘iPhone clones’, ‘iPad clones’, ‘MBA clones’, and ‘iMac clones’. They always say Apple is too expensive.
As most informed people know, this is really about three things (in the following order of priority):
–Most businesses still use Windows on their PCs and analysts can’t get past the historical fact of M$ beating Apple on the desktop and almost killing them as a result (they fear it will happen again). Just witness the contortions that Gartner & IDC go through to pretend that the iPad is not a PC, even after Apple enabled system software updates without connecting to a desktop/laptop, to understand how they CAN’T let go of the idea of Apple as the perennial marketplace loser/niche player. (The mp3 player sector doesn’t count, in their eyes, because it isn’t a “serious” market.)
–Investors’ belief in the mythical “law of large numbers”. This “law” is as real as unicorns and pixie dust, of course, but analysts firmly believe in it nonetheless. As long as Apple has a high market cap, the fact that there is ENORMOUS headroom for growth in ALL of their current markets, even discounting new markets, analysts think it means that Apple’s growth “must” slow.
–Steve Jobs is dead. Given the first two beliefs above, analysts have told themselves that the ONLY reason Apple has succeeded in recent years is because of Steve’s “magic.” To analysts, Apple’s success is inexplicable, therefore it comforts them to believe that it will start to collapse now that Jobs is gone. While I think Jobs was a genius that can’t be replaced, Apple is already so strong that “very good” execs can continue its strong growth for at least 10-15 years, potentially dominating the next generation of computing.
All of the above means that short term Apple will continue to be undervalued but that long term investors face a once-in-a-lifetime buying opportunity. At some point, the market will figure Apple out because it will have no other choice; those who are not on board then will miss out, big time.
Great analysis, Janice–thank you.
+10,000
Good analysis, but inappropriate use of “law of large numbers”. That law doesn’t refer to the magnitude of the value, but rather to the number of samples taken. If you have a thermometer that randomly fluctuates around the temperature, then the average of values read gets closer to the actual temperature as the number of readings increase. LALN might apply if AAPL was traded sparingly, but AAPL has plenty of volume. Even in the sparse case, LALN tells nothing about whether the “true” value is lower or higher than the apparent value.
That’s just the beginning of the analysts’ problems.
Correct on all accounts …….
The scale will tip and sooner than most think ….. Apple $650 will be here within 18 months, I am thinking …..
… 24 months! But … it will get here. And sooner than most pro investors can imagine.
And what will THEIR investments be doing? Did you know that MSFT has been costing many Mutual Fund investors their retirement moneys for years now? While AAPL has been growing? THAT’S what they’ve been doing! Idjits!
Apple is creating new markets rather than reacting to the competition in its existing market. Analysts cannot fathom the market cap because there is no case study for cross functional technology devices disrupting entire industries – it’s not like swiss army knives put tweezer companies out of business.
Apple still remains a question mark investment. Half the critics are saying Apple is a great company while the other half says the company is about to tank. I’ll bet you don’t hear that sort of talk about IBM or Amazon. Apple gets absolutely no respect from Wall Street. Many of you Apple bulls keep claiming that the stock will go up on earnings, but it’s honestly not that clear cut when it comes to Apple. Even record-breaking sales could drive Apple’s share price down. If earnings were that sure of a win, do you think the share price would be staying as flat as it is. People would try to get in now before the stock takes off. I like the company but don’t trust its quarterly share performance even a tiny bit. For a company that’s killing the competition, shareholders should have all the confidence in the world.
Honestly, there is just too much nonsensical talk of this stock going up just like the last couple of quarters and the share price has done very little compared to Apple’s revenue growth. Maybe it’s understandable, but then don’t keep crying the share price is headed for the moon, because it isn’t. It’s plain enough to see that Apple shares never climb like that. Nothing will change this time around, either. I’m almost willing to bet the share price won’t go higher than $440 upon earnings even if they sell 35 million iPhones. Just take your 25% share growth every year and be grateful you get that much. It’s better than what most shareholders are getting in returns.
Is the Apple of 2012 like the RCA of the late 1920’s?
High flying technology company growing by leaps and bounds. All the news is good going forward with rapid adoption of products. Paid no dividends.
$450 to $32.
Not saying it is, but it is something to investigate.
This is so off base that is hard to respond to, but let’s try.
Apple currently dominates several markets. Their customer loyalty numbers are off of the charts, indicating that this will continue.
Therefore, one would logically assume that Apple earnings will be quite large. This isn’t conjecture, but is based on recent performance and very likely future performance.
Therefore, let’s be conservative (ridiculously so, in my opinion) and say that 2012 earnings will be $32.
Does that equate to a $32 share price?
What are you talking about?
Do you have any idea at all?
When the economy crashed high flying RCA went from $450 to $32 per share- not because RCA did anything wrong. RCA was the darling stock that even people who didn’t play the market bought thinking it would just go up and up and up.
As to:
“This is so off base that is hard to respond to, but let’s try.
What are you talking about?
Do you have any idea at all?”
You might have a condescending attitude problem. Let me educate you.
RCA not only made radios, the transmitters and other equipment, they owned the then 2 largest radio networks. The whole ecosystem of the fastest growing consumer technology of it’s time. Who does that sound like in a modern context?
So, you are using a macroeconomic shock, as the reason for RCA dropping. Thus to make the correct comparison, you should be studying the macroeconomic situation. In that case, almost all stocks would suffer. Further when people analyse a company, their analysis is separate from macro effects, implicitly. That’s why your post is nonsense. If you really felt that there was going to be a major macro shock, you’d tell people to get out of stocks, completely.
Apple is a well run and financially sound company that sells stuff that people do not need, unlike a utility or grocery chain. If the market goes south hard enough Apple will be dead in the water. I do not expect that to happen although it is possible. The worldwide economy is quite fragile.
I also have no doubt that Apple would be able to survive such a shock unlike many of it’s competitors as it has far lower overhead and liability than others.
My point is that the go go attitude of casual investors in Apple is similar to that of RCA- a similarly positioned company in another tough economic era. RCA survived and later thrived, but people who bought in at the casino (bid up) prices got their clock cleaned despite investing in a solid, well run company.
Essentially it’s an admonition to be careful when hanging money in this economy. I sold a chunk of my Apple stock off at $402/share late last year- not all, but quite a bit. I had started buying at less than $10/share and stopped accumulating in the low $300 range. My take is that Apple is due a correction and I would rather not take the hit.
Not worth investigating at all.
Why would Apple got to $32 a share? They made $27 a share this past year. This coming year, they’ll make in excess of $40 a share. How in the heck do they go to $32 a share?
Why is it “Conservatives” are late to the party, entrenched in the past, and see nothing but failure where opportunity abounds? True for business, politics and religion.
Liberals have their own serious deficiencies, but that is a topic for another time.
Whenever anyone asks me which stock i think is the best one to buy i always say AAPL. I always get the same response”it’s too high priced”. The average novice investor can’t understand that share price doesn’t matter. They would be comfortable owning 100 shares at $45 but they don’t like the idea of owning 10 shares at $450. I think the theory that institutions are fully invested in Apple and not willing to put a bigger percentage of their portfolio into it makes a lot of sense. A 10 for 1 stock split would create a lot of new interest in the stock.
You are absolutely correct, fscuttle. Absolutely. Everyone in my family and circle of friends hesitates to purchasing 10 shares of AAPL at $420, but would fall all over themselves to buy 100 at $42. Sorry, stock-techies, but this is an undeniable fact of human nature and one I hope and pray Tim Cook is taking into account this year.