David Einhorn of Greenlight Capital mentioned a phenomena today pertaining to Apple Inc. (NASDAQ:AAPL) on CNBC. It involves a pull that it has on customers who cannot and will not leave its ecosystem. It is like getting stuck in quick sand, you only get deeper and deeper. If any company’s products has that effect, it’s worth to keep it in your portfolio and that is exactly what Greenlight Capital has done.
David Einhorn’s description of this phenomena, should be justified by perhaps adding another word to the Apple lexicon. iPull. Just like gravity keeps the planets in place and doesn’t let them wander off, iPull is the same force that does the job for Apple Inc. (NASDAQ:AAPL).
“[…] Our core thesis, which is that Apple is a growing company, because they have a basic customers, that when they get a new phone it is very likely going to be another iPhone and when they want to have another kind of wireless device, it’s very likely going to be an iPad or related product, since you have a customer base that sustains itself and then repeats itself and then you add on top the new customers that they win, which makes it a growth company […],” explained Einhorn.
After a recent pop in its stock price following the earnings report for the third quarter, Apple Inc. (NASDAQ:AAPL) was trading at $102.47, up about 2.7% when the closing bell rang. Einhorn still blieves that the stock is cheap considering the forward earnings multiple that it is trading at. He showed this using a back of the hand calculation.
“[…] Estimates for next year are creeping up to $8 per share. I think there is a $20 a share of net cash, so if you net out the case you are about ten times next year’s earnings which I think is remarkable for a franchise like this […],”said Einhorn.
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