“It’s very common to see articles talking about valuation of Apple (AAPL). Usually these articles will talk about Apple’s earnings, cash reserves and strong brand name, among many other things,” Jacob Steinberg writes for Seeking Alpha. “One thing that never gets mentioned when Apple’s valuation is being calculated is the company’s lack of debt. As of right now, Apple has zero debt. Shouldn’t this be worth something?”
Steinberg writes, “Apple’s current price tag is $515 billion, which comes with $120 billion in cash and over $40 billion annual earnings. Because the company has no debt, the valuation of the company looks absurdly low. If I had $515 billion to spare, I would go ahead and buy Apple within a heartbeat. This is one of those giant purchases that don’t come with the so called buyer’s remorse.”
“Apple’s fair P/E ratio looks to be around 20 when one ignores the fact that the company is debt free. After factoring in the company’s lack of debt, the valuation should change dramatically,” Steinberg writes. “In the technology industry, many companies have large loads of debt and they spend a large portion of their income to service this debt. Because Apple doesn’t have that problem, its fair value should be much higher than its current price. It is fair to say that Apple is as cheap as it gets.”
Read more in the full article here.