And it’s the bottom line that will likely have investors pushing this stock back up above $700 a share (representing 40% upside) in coming years.
To get a sense of Apple Inc. (NASDAQ:AAPL)’s latent value, you need only look at the company’s balance sheet.
Apple’s fast-growing cash pile
Apple didn’t reach the $50 billion in cash level until fiscal 2010, yet by fiscal 2012, this figure had already exceeded $120 billion. Analysts expect free cash flow to stay strong for Apple Inc. (NASDAQ:AAPL), and predict the company will have $200 billion in the bank by fiscal 2014, and $250 billion in the bank by 2015.
To put that in perspective, the recent pullback in Apple’s stock means projected 2015 cash will be more than half of the current value. If you back out the $200 billion Apple will likely have on its books by fiscal 2014, then Apple Inc. (NASDAQ:AAPL) is now valued at around $280 billion. That’s just 5.5 times trailing operating cash flow. It’s hard to overstate just how cheap this stock has become, in relation to cash and cash flow.
Risks to Consider: Much rides on Apple’s imminent push into the TV business. The efforts are likely to represent the culmination of all that Apple has been working toward, and the company can’t afford to bungle the launch.
Action to Take –> Apple’s management has never gone to much trouble when it comes to enlightening investors about the company’s growth prospects. The meteoric sales growth has made that unnecessary. But we’re entering a new era for Apple, as hardware sales growth inevitably slows, but rising software sales pick up the slack. As a result, management will need to step out of its comfort zone and start talking up future growth plans.
This article was originally written by David Sterman, and posted on StreetAuthority.