Apple trading at a discount to the S&P 500

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    Posted: 30 August 2010 05:43 PM

    Flush with $45 billion in cash and investments ($50 per share) and no debt, Apple sports an enterprise value of about $190 per share. Compare that to $15 of earnings this year and enough catalysts to make next year?s estimate of $18 seem easily attainable, and you have a stock that actually trades at a discount to the S&P 500.
    via

    Why Apple?s Stock Actually Looks Cheap ? Seeking Alpha.


    This is not news around here:
    http://www.asymco.com/2010/06/19/apple-considered-less-valuable-than-the-average-sp-500-company/

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  • Posted: 30 August 2010 07:02 PM #1

    I guess its hard to argue with some numbers and such but from a buyer perspective there are a number of things that can become bigger problems that are probably handicapping the price somewhat.

    1) how many people actually think demand for apple products will subside due to economic concerns?  Hasn’t happened but can you ever rule it out? I would venture to say most people don’t even consider this as a probability.

    2) apple is cheap, but other tech companies are even cheaper. (cheaper isn’t good…blah blah..I know the drill)

    3) can apple keep its competitive advantages with different leadership?

    4) law of large numbers

    Do I agree or disagree with these points. It doesn’t matter. But its what people who are in a position to buy or sell stock often point too.  There are reasons for why the stock is where it is.

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    Posted: 30 August 2010 07:30 PM #2

    While the stock might be cheap today compared to the average S&P 500, that could change quickly. Today was a good example of that - it is possible that if markets deteroriate rapidly, there could be a flight to safer names like AAPL. Of course, there could be a flight to safety period.

    Assuming that AAPL’s PE continues to compress due to market weakness, we know that at the low point of the crisis, AAPL PE had dropped to ~10+ GAAP and ~14+ non-GAAP. If AAPL’s PE does go back down to about 15, the stock would still be around the current levels ($247) come Jan 2011 assuming an EPS of 16.5 for TTM after the Dec 2010 quarter. That’s a long way from the $80 level we saw during the crisis and the only reason for that would be AAPL’s amazing growth rates.

    Of course, there could be a lot of pain between now and then, but at least that’s one scenario of where we could end up 6 months from now based on the above assumptions.

         
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    Posted: 31 August 2010 08:05 AM #3

    A P/E of 15 on the back of 86% EPS growth will be a sight to behold. A multiple of 15 would mean retained earnings will sum up to stock price in 4 and a half years, say 5 after discounting for cost of capital.

    Apple is so cheap that it would make a good takeover candidate.  Maybe Steve Jobs should take it private.

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  • Posted: 31 August 2010 08:45 AM #4

    asymco - 31 August 2010 11:05 AM

    A P/E of 15 on the back of 86% EPS growth will be a sight to behold. A multiple of 15 would mean retained earnings will sum up to stock price in 4 and a half years, say 5 after discounting for cost of capital.

    Apple is so cheap that it would make a good takeover candidate.  Maybe Steve Jobs should take it private.

    I’ll be glad to give Steve my shares for anything north of $400.

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    Posted: 31 August 2010 09:02 AM #5

    Eye (and finger) candy showing the P/E tragicomedy.

    http://www.asymco.com/2010/08/31/add-this-apples-pe-punishment/

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