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Is Apple ($AAPL) Still Cheap?

August 29, 2012 | About:
Intelligent Speculator

Intelligent Speculator

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I know, I say that the media is obsessed about Apple but I am sometimes guilty of the same thing. I thought it was shocking that Apple was worth more than the sum of Google, Facebook, Amazon and Microsoft as I wrote about yesterday. I can’t imagine choosing Apple if I was offered the choice between the two. That would not necessarily mean that I think Apple is overvalued though. Clearly, I think Facebook is undervalued and that Google is a great value play. I’m a bit more hesitant about both Microsoft and Amazon but also tend to like both stocks. So it’s certainly very possible that Apple might be a great bargain.

Still Wouldn’t Be As Cheap As A Few Months Ago

When I wrote about being crazy to not own Apple, it was December, and the stock price has increased 60% since then, Clearly, the stock was much more of a deal back then. Apple has had a good year and is scheduled to announce both the iPhone 5 and a mini iPad in the next few weeks which should lead to record sales in the upcoming weeks.

Is Apple Still A Bargain?

The question is certainly intriguing and the best way for me to answer it is to look at earnings per share in recent quarters as well as what’s currently expected for company now led by Tim Cook.

AAPL.png

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBeta
AAPLApple Inc674.828.0515.8612.7567.5565.964.65119.230.99
It’s P/E ratio currently stands at 15.86 with a forward P/E of 12.75. Let’s compare those numbers with a few competitors in the hardware and software industry by also including 5 year growth in earnings per share and revenues:

TickerAAPLMSFTGOOGEBAY
NameApple IncMicrosoft CorpGoogle InceBay Inc
Sales Growth (1 year)65.965.429.2827.25
Sales Growth (5 year)46.17.1726.5313.71
EPS growth (5 year)61.33N/A23.7927.37
P/E ratio15.8611.1819.8824.36
P/E Next Year12.759.213.7317.26
I’m more than open to add aother relevant companies to the comparison (there are no perfect fits obviously here). Personally, when I look at these numbers, I can’t help but think that Apple looks like a great value play, even at these numbers.

Can The Growth Keep Up?

There’s no doubt, you could probably make a case that growth decelerate for Apple in the next few years. The company is so big that keeping up the growth seems impossible. It faces increased competition in its iPhone business from Android powered phones, it seems to be lacking leaderships since the early departue of Steve Jobs, etc.

On the other hand though, Apple is rumored to be a year or so away from launching an assault on TV’s which could be huge, it is a leader in two markets (smartphones and tablets) that are exploding, etc. The killer argument in my opinion is that even if things did slow down, Apple would still remain a value. I mean, look at its current P/E and companies that trade around that number and you’d have to agree that Apple’s stock floor isn’t very low in the short to medium term. Could it turn out to be the next RIMM? Sure, that’s possible, but it wouldn’t happen overnight. And I would certainly hope/expect to be able to spot that trend before the stock started tanking.

What are your thoughts? Is Apple still a great value at its current valuation?


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