Why Apple stock is grossly undervalued

“By far the most significant (and unexpected) part of Apple’s quarterly report was the announcement that the company is increasing its share buyback program from $10 billion to $60 billion,” Matthew Frankel writes for The Motley Fool. “A higher dividend is nice, as it creates a “price floor” effect. As the share price of a high dividend stock drops, at some point the yield will become so high as to attract new investors. At $400 per share, Apple currently pays around 3%, including the dividend increase announced with the recent report. If shares were to fall to say, $300, Apple would yield over 4%, and serious income investors would find the stock much more attractive. However, the dividend does nothing to increase the intrinsic vale of the stock, and is not the best way to return more capital to investors.”

“hankfully, Apple was thinking the same way, and as Tim Cook put it, “We concluded that investing in Apple was the best.” The buyback increase is much more significant than it seems. By increasing the buyback to such an unprecedented level, Apple is telling the market, ‘our shares are so cheap at these prices, that the absolute best way that exists to use $50 billion in cash is to buy some of our own stock at this amazing discount,'” Frankel writes. “How big is the buyback? At $400 per share, a $60 billion buyback equals 150 million shares, or almost 16% of the entire float. This is a tremendous amount, especially considering the company intends to complete this in just over two and a half years, by the end of 2015.”

Frankel writes, “When you combine the almost certain lull in anything new from Apple between now and the fall with the fact that the market simply doesn’t trust that the company has any real innovations left, this creates a great opportunity to accumulate shares if you believe that the company still has some tricks up its sleeve and is grossly undervalued. I believe that, and as of this past week, so does Apple.”

Much more in the full article here.


  1. Many people claim Apple is so undervalued but that never changes. It just continues to stay that way or get worse. I’m not sure what it means. If it just stays undervalued then doesn’t that become the normal value? What makes Apple so unusual in that respect as to stay undervalued all the time? Why isn’t the company able to put worthwhile value into the stock or make it attractive enough to investors?

    Why can’t Apple do anything with its overseas cash? Is it just going to leave it overseas forever? It’s not likely to be repatriated without a huge tax bite. Why not use that overseas cash to build automated factories or start building server farms in Europe, Asia and South America? It’s about 60% of Apple’s cash, right. Honestly, it just seems like Apple isn’t trying hard at all to dominate the mobile industry.

    It just seems as though Apple’s performance runs counter to the amount of cash it has on hand. Is it that they don’t have enough skilled employees to do the things most companies can do? I really don’t understand why Apple is losing momentum with all those retail stores they have available. Are they no longer packed with customers? Is the weak economy the cause of the YOY losses? I have so many questions about what’s happening with Apple and I’m not the only one.

    1. LB 48, Welcome to the real world.
      Things get confusing when people with money act stupid. Are they doing it for a reason? Are they getting bad info?

      Yes, Apple should be able to do what ever it wants, but laws and countries do not work that way.

      And you are asking questions that have solid answers too.
      Apple stores ARE PACKED. GO TO ONE. Apple is making Billions of dollars each quarter. YOY losses are not Apple falling apart. People are buying different things. They do not tell anyone a year in advance what they will do.

      So, for your questions about what Apple is doing, most have simple answers. Many times Apple does not say what it is going to do. Live with it. Most companies that do say what they are going to do, …… are lying. Trying to make points by making their competition do something stupid.

      This is how business works. But Apple does business by making insanely great hardware, wonderful software, and just keeps improving everything. Gee…. Why would a company do that???? Samsung spends money on people to keep you running in circles instead of providing great customer service.

      PS, Gee why doesent Apple try to DOMINATE THE MOBILE INDUSTRY??? Cause global world domination is not Apples plan. Just make great products and let people come to your door. It takes longer but if they are great, people DO NOT WANT TO LEAVE!!!!!! And that is how Apple will beat Android. Just keep taking customers and not letting any leave.

      OK, any other questions, just ask nice. I would even reply of site if you wish.


    1. They are currently a hardware and software company. When they introduce iWallet in the Fall Apple will add Financial Company to their resume. Guys on Wall Street know how much profit there is in that; should wake them up. And then when they obtain their brokerage license and add the iTrade app they will be able tell all these analysts to f*ck off.

  2. @ Laughing_Boy48,

    Apple’s value is in it’s ongoing business (hardware, software, ecosystem) and the profits it derives from its business model. Based on their sales and profits, they’re undervalued because given their “numbers” (sales, profits, etc.) the stock price SHOULD be much higher, as compared to other companies with much less revenue but similar stock prices. Of course, as we’ve seen in the last 6 months or so, the stock market with regard to AAPL’s share price does not depend on just objectivity. Apple’s losing momentum? Really? Just because their profit margin this past quarter only grew 37% vs. 47% from the year before means they’re done for? What other company on Earth generates the kind of profits that AAPL does? What was it? 40 BILLION in sales just these last 3 months? Is it reasonable to expect that AAPL would exponentially increase its profit margins quarter after quarter, year after year? Many thought this wouldn’t have been possible 10 years ago, not knowing what was up Apple’s sleeve, so to speak. Who knows what hidden projects are in the works? Who knows what Apple has planned with their overseas cash? Should we be so naive to think that the smart folks within Apple’s boardroom and beyond haven’t taken into consideration all of these issues?

    Some pundits talk about Apple’s lack of innovation. Again, really?!! What other tech company innovates and executes like Apple? Samsung? Apple innovates, all others follow. I’ve seen this time and time again since becoming an Apple fan after buying my first Mac in 2001.

    Sales will continue, new products and improvement of existing lines will occur in the next 3-5 years and beyond. Those that clamor for new product categories to be released over a period of months also are naive. Years of research, design, etc., is needed to create revolutionary new products that change the way we live. Who else in the tech world does this repeatedly except Apple?

    Sure, if one is interested only in trying to make a quick buck over a 3-6 month period and is now negative on Apple because the stock price is “down” from high 6 months ago — too bad.

    Their business is solid, their balance sheet is stellar, their dividend yield is now one of the best, and they continue to produce great products. They’ll continue to rake in impressive profits over the next several years. Their success shouldn’t be measured on their stock price per share. That will follow, too, eventually. A company’s solid performance eventually wins out.

    Not that I’m some clairvoyant or anything, but as a fellow shareholder since Jan. 2005, I plan to ride this negativity out as I’ve done many times in the last 8 years, only to be rewarded later. I regret not having any extra funds to invest some more right now!

    1. nsapap.
      WOW, you took the words right out of my mouth. Well said.
      And to those trolls that like to put Apple down, I just feel sorry for them (lb48 seems to be trying to understand, a little).

      So enjoy the ride,. I am trying to scrape up a couple more bucks and get a few more shares. Hey, I am long on Apple, bought some along the way almost all the way up (starting at 80). Hey, unless the world crashes, Apple will end up on top. Trust the plan. Steve was the man. 🙂

      1. Tim? Tim is that you?

        If you feel sorry for people who don’t like Apple then your life is clearly empty and pointless. It’s absurd and hysterical people like you who give us Apple fans a bad name. Grow up and find something important to get angry about.

  3. Eldernorm,

    Thanks for the comments. I got in at 90 just before the last split (but I unfortunately watched the stock go from $14 to $90 over a 9-month period before I bit the bullet, thinking it might drop a bit before climbing again).

    I continue to read the articles the pundits pump out and now, after many years of doing so, have realized how superficial most of these “analyses” are — I wonder at the hidden agendas of these “analysts.” Very few talk about profit share, global use of iOS, etc. Most seem to reiterate the market share mantra and imply that this directly relates to profit margins, when in fact in this case it does not. Let’s face it, if a company can’t make a profit, it will eventually shut its doors. You said it correctly also — unless the world crashes, Apple will prevail!

  4. I’m surprised about Frankel. He is working for a financial site but his views are flawed.

    “the dividend does nothing to increase the intrinsic vale of the stock, and is not the best way to return more capital to investors.”

    Dividend is the best way to return capital to share holders. A buy back on the other hand useless. Research has shown that most buy backs are a waste of money. In my opinion all buy backs are a waste if money. The company is buying itself for cash that was already there and is regarding exiting shareholder which is totally insane. A dividend is a much better for investors that can buy new shares and now you have compounding. Reaves those that want to hold your stock, the ones that believe in your company for the long term. Sadly Apple is also borrowing money to facilitate this waste if 50 billion. I would like see 50 billion in dividends instead… I’m disappoint in Franklin, and Apple.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.