Although Apple Inc. (NASDAQ:AAPL) is the largest company in the markets today in terms of market capitalization, and its shares priced similar to Google (NASDAQ:GOOG), there are indications that Apple stock might actually be a good buy for investors.
Yes, we don’t think the ceiling has been hit yet. In fact, we believe the stock is actually undervalued for what Apple has done and appears to be primed to do in the future. Why in the world would we come up with this conclusion, that Apple Inc. (NASDAQ:AAPL) stock is actually cheap? Let us look at several reasons having to do with the bottom line.
For example, Apple has grown more than 20 percent year-over-year, and there has been no indication of that slowing down, especially if the new iPhone 5 develops sales that matches even half of its hype. With Apple already owning 68 percent of the market for tablets (seven times that of Samsung), that saturation may lead to many “default” sales when customers can’t decide between tablets and they go with the market leader, the iPad. Also, Apple Inc. (NASDAQ:AAPL)’s iPhone has been running a very strong second to Samsung in smartphone sales (increasing those sales every year as well), there is very little reason to believe that Apple won’t continue at least seeing double-digit growth, if not the 20-percent trend.
Based on that, if the stock were in some way to mirror the company, the stock should be growing by about 20 percent every year. Right now, Apple is on track to post $45 earnings-per-share for the year. If iPhone 5 sales are as high as we expect, that EPS number could go above $50, which would lower the price-earnings ratio to 12 from the current 13 if the stock doesn’t move significantly up in the meantime.
Apple, Inc. (NASDAQ:AAPL) has $117 billion in cash and marketable securities on its balance sheet, which really don’t factor much in the company’s bottom line. If you take that money out, the company’s P/E ratio drops to 10. While a 10-percent yield is nothing to sneeze at, Apple has had a history of doing far better than that in terms of annual growth, and there is evidence that its universe of potential market share might actually be expanding.
Take this quote from Mark Zuckerberg of Facebook (NASDAQ:FB) during his company’s quarterly earnings conference call, when he predicted that 4 to 5 billion people will have smartphones in the next five years. He essentially said that the smartphone market will expand by six to eight times what it is right now. And if Apple’s market share doesn’t get larger and holds steady during that growth, that means the company will sell six to seven times more iPhones than it is currently. Even if Zuck is half wrong, that still means Apple grows by 300 percent in iPhone sales over where it is now.
Already, Apple Inc. is the most popular stock position among hedge funds (see the 10 most popular stocks among hedge funds). And those who held Apple at the end of last year and kept it through the first quarter of 2012 made nearly 39 percent on their money. And with continued steady, rapid growth, it’s possible that more hedge funds will get positions in Apple, or those already in will increase their positions in the next fewmonths or years.
Apple Inc. (NASDAQ:AAPL) has a long track record of being a fast-growing company, has strong financials in place and has a highly recognizable brand and line of products. It isn’t very long from now that Apple will be the most recognized brand in the world – going past Coca-Cola (NYSE:KO) – and will become a trillion-dollar company.
We say, dive in, the water’s fine!
