For two months, from mid-September to mid-November, Apple Inc. (NASDAQ:AAPL) dropped from $700 to about $525 per share- a correction of 25%. The stock was still well up from its levels at the beginning of the year- in early January it was trading a bit above $400- but market watchers feared that the stock would continue down. However, we’ve since seen a rally of about 10% as we close in on the end of the year.
Apple Inc. (NASDAQ:AAPL) had been the most popular stock among the hedge funds and other notable investors tracked in our database of 13F filings for the third quarter of 2012 (see the full rankings), even after the fall in its stock price had begun. Billionaire Ken Fisher’s Fisher Asset Management had streamed into the stock, increasing its holdings by a factor of more than 10 to a total of about 960,000 shares. This made it one of the ten largest positions by market value in Fisher’s portfolio (find more of Fisher's favorite stocks). Third Point, managed by billionaire Dan Loeb, also added shares and increased its stake to 710,000 shares (check out more stock picks from Dan Loeb).
Apple Inc. (NASDAQ:AAPL)’s fiscal year ended at the end of September, with the company’s 10-K reporting strong growth over the previous fiscal year. Revenue was up 45%, and net income came in 61% higher; earnings were almost triple what they had been in the fiscal year ending in September 2010. Apple also finished the year with a hoard of cash, cash equivalents, and marketable securities totaling $121 billion (mostly in long term marketable securities).
The stock currently trades at 13 times trailing earnings. A multiple in that range generally indicates that the market does not expect much growth in a company’s earnings, so even if Apple Inc. (NASDAQ:AAPL)’s growth rate slows dramatically it would likely be undervalued at these levels. Wall Street analyst estimates place the stock at a forward P/E of 10 and a five-year PEG ratio of 0.6, demonstrating that it certainly has room for a substantial rise in price if it can hit earnings targets. We wouldn’t bet on the company beating earnings, but as we’ve discussed the market seems to be pricing the stock at experiencing little if any growth. If we treat long term marketable securities as cash equivalents and subtract them from Apple’s enterprise value, the EV/EBITDA multiple comes in at 7.3x.