Apple Inc. (AAPL): Is It Actually a Value-Play?

With Apple Inc. (NASDAQ:AAPL) trading below $500, value investors are starting to come out of the woodwork. Buying one of the world’s most powerful tech companies at bargain prices sounds like a sure win. Still, it is not a done deal. Academic research shows that using price to earnings (P/E) ratios from multiple years is a much better predictor than earnings from the trailing 12 months. Apple Inc. (NASDAQ:AAPL)’s ten year P/E is far above its 12 month P/E ratio and this should cause some hesitation.

Business overview

Apple Inc. (NASDAQ:AAPL) sells high-end computing devices. iPhones have grown to become its greatest revenue driver at more than half of all Q2, 2013 revenue. iPads and Mac computers are second and third, respectively. The company has come a long way from the nineties when it was struggling to compete with Microsoft Corporation (NASDAQ:MSFT) in the PC market. With the iPod and the iPhone, Apple Inc. (NASDAQ:AAPL) completely leapfrogged Microsoft and took computers to where the modern consumer is; mobile and on the move.

Where is the future heading?

Apple Inc. (NASDAQ:AAPL)’s competitors continue to catch up and Apple Inc. (NASDAQ:AAPL) must be ready for a fight. The Asia Pacific region provides precious growth. In Q2 2013 Greater China grew 8% year-over-year (y-o-y), Japan grew 19% y-o-y and the rest of Asia Pacific grew 26% y-o-y. Still, competition is heating up and many Android phones are cheaper than iPhones. Companies that track internet traffic show that the trend-setting cities of Hong Kong and Singapore have seen substantial falls in the iPhone’s market share relative to Android.

Google Inc. (NASDAQ:GOOG) offers Android as an open-source operating system (OS) in the mobile computing space. It is a healthy and free alternative to the costly prospect of developing a proprietary OS. Hardware without software is worthless and Google Inc. (NASDAQ:GOOG) is working hard to bring its app store up to the level of Apple’s iTunes store. Still, Apple’s tight control over its OS helps to create an easier environment for app developers. This is one area where the company has an advantage over Google.