Apple Inc. (AAPL): A Value Stock

Challenges on the horizon

Apple is not without challenges. Unlike the United States, much of the rest of the world’s telecommunications companies do not subsidize their phones. That means that the iPhone 5 starts at $649 not $199. This also means that many consumers are going to either choose cheaper Android phones or earlier iterations of the iPhone, which will hurt margins. Considering this, as well as the competition from companies like Samsung with their Galaxy S III in the high-end smartphone market, the 5 year projected growth rate of Apple Inc. (NASDAQ:AAPL) at just under 19% may be too high. The recent pullback in stock price has already more than compensated for a deceleration in the growth rate. If Apple’s projected 19% growth rate gets cut in half, Apple’s PEG ratio would still only be about 1.1. Google trades with a PEG of 1.26 and Microsoft trades with a PEG of 1.17.

It’s not like Apple is the next BlackBerry. Apple has almost $40 billion in cash and continues to generate lots of cash quarter after quarter. On top of that, Apple’s production of the iPad, iMac, and iPhone cannot keep up with demand according to Tim Cook on Apple’s most recent conference call: