• Posted: 23 February 2010 03:15 PM

    I too am frustrated with the apparent inability of the investment community to see what what I think should be readily apparent.  So much so that I registered on Seeking Alpha and wrote a blog entry about it.  Here is the link for those who might care to give it a quick read.  It may be overly simplistic given the more financially detailed information presented here but I offer it up anyway.

    It seems to me that companies always are valued on prospects for future growth.  It would appear that Apple should post earnings growth of something like 40+% this year ($8.19 to $12.00) yet the stock is trading at a cashless multiple of about 13X.  What gives?  Since my calculation is so basic that anyone can do it, I know that I have not discovered some heretofore unknown valuation tool. Obviously, we are at an inflection point for Apple.

    Despite still robust growth prospects for both Mac and iPhone, the investment community seems to have taken the view that the iPad is a make-or-break product for the company.  In the minds of the investment community, if iPad is a flop, the company’s future growth prospects apparently are greatly diminished.  Without a future growth accelerant, the Apple story is less compelling, eh?  I suppose the institutional investment community is taking a wait-and-see approach.  If iPad uptake is better than expected, they all pile back into the stock, even though reports that Apple is already the most-widely held company amongst the hedge funds that it tracks.  Apple appears to be the ultimate play of the momentum crowd since the company always presents 4-5 definitive trading opportunities each year (earnings announcements and new product intros).  Without those catalysts, the momentum crowd goes elsewhere until the next company announcement.

    As a blogger previously posted in another thread, for many years Apple traded at both a premium to the market and to its own growth rate, at a time when its competitive and financial position were much weaker than they are today.  Now that Apple is a successful and well-entrenched company, it appears as though its market cap is working against it since many people believe that a company with an $180+ billion market cap cannot or should not be posting the top-and-bottom line growth rates that Apple is.  I understand this sentiment and also understand that Steve Jobs’ health is a limiting factor, but does the market really believe that Apple is only worth 13X earnings?  Apparently so.  Inscrutable.