Depending on the direction of Apple Inc. (NASDAQ:AAPL)‘s stock in the next few months, we may hit a tipping point where the market assigns a value that is unheard of. Based on at least one metric, Apple stock is almost as cheap as one of their struggling competitors. The company’s growth may be slowing, but through share repurchases and dividend increases, management is proving its commitment to shareholders. From now until around June, investors may have a chance to buy Apple Inc. (NASDAQ:AAPL) at these prices. After that, don’t expect to see these prices again.
What did the market expect? One of the main headlines I’ve read about Apple over the last year or so is that growth is slowing. Naive commentators have even said that the stock price dropped because investors had to adjust to this slower growth phase. Here’s the thing, none of that makes sense.
While it’s true Apple Inc. (NASDAQ:AAPL) investors may never see 50% and 60% revenue or earnings growth again, the stock was never priced as such. In fact, at today’s price, Apple carries a forward P/E of under 10, that is cheaper than Microsoft Corporation (NASDAQ:MSFT) at 11.5 times earnings, or Google Inc (NASDAQ:GOOG) at 17.88 times earnings.
Of course the difference is, neither of these companies is expected to grow earnings at the same rate as Apple. Analysts generally expect about 9% growth from Microsoft Corporation (NASDAQ:MSFT), and about 15% from Google Inc (NASDAQ:GOOG). Those same analysts are still calling for 20% growth from Apple Inc. (NASDAQ:AAPL). You’ll see why this is possible in a minute.
When it comes to growth, Apple is going through a transitional period where the iPad will become more important to their overall revenue and earnings. With iPhone unit sales up 6.55%, and revenue up 3%, clearly some customers chose older model iPhones. iPad growth of 65% in units, and 40% in revenue, suggests the iPad Mini took sales from the larger model. It’s the transition from more expensive units to cheaper models that is Apple Inc. (NASDAQ:AAPL)’s future.
4 reasons the stock looks like a steal This transition to cheaper models is actually a good reason for long-term investors to buy the stock. If Apple came out with cheaper models on day one, their margins would never have been as high as they were. However, simple economics would suggest the company release the highest priced models first, capture the most profit, and then over time lower prices to gain market share. Apple is likely to continue to make models more affordable, and a lower margin will be eclipsed by the massive growth in the smartphone and tablet industry.