By now, most investors know Apple Inc. (NASDAQ:AAPL)’s recent history: after eclipsing $700 per share and briefly becoming the world’s most valuable company by market capitalization, the stock cratered. Shares have fallen 35% since the highs reached last year. Once the darling of the investing community, Apple Inc. (NASDAQ:AAPL) has now been thrown into the trash. The market has seemingly decided that Apple’s days of innovation and growth are over. Clearly, the company has nowhere else to go but down. However, don’t be fooled: despite the swirling negative sentiment Apple is trading at an extremely low valuation, and at current prices represents a compelling value.
What a Difference a Year Makes
As recently as a few months ago, Apple Inc. (NASDAQ:AAPL) was destined for greatness. Analyst after analyst raised their price targets in a bizarre attempt to one-up each other. Calls for $1,000 per share price targets and even a trillion-dollar market cap were not only possible, but inevitable. Fast forward to today, and everything has changed. The esteemed sell-side analyst community has completely turned on Apple Inc. (NASDAQ:AAPL), presumably because of the company’s ‘disappointing’ quarterly earnings results.
Positive analyst sentiment is now reserved for the likes of Google Inc (NASDAQ:GOOG). Google is undoubtedly a fantastic business. Google recently reported full-year 2012 results, and the markets loved what the company had to say. Revenues soared more than 30% year over year, and have more than doubled since 2008. Diluted earnings per share clocked in at $32.31 per share. Shares of Google are up more than 9% since the end of 2012.
Another technology company in the midst of a run-up is Amazon.com, Inc. (NASDAQ:AMZN). The company reported that fiscal 2012 revenues climbed 27% year over year. However, earnings per share came in at a loss of 9 cents per share compared with a profit of $1.37 from the prior year, although you wouldn’t know it by the reaction of the stock price since the earnings announcement. Shares of Amazon rose 13% since the end of 2012, before retracing a little to its current levels.
Apple Inc. (NASDAQ:AAPL), meanwhile, reported fiscal first-quarter 2013 earnings—and the market was far from pleased. Although the company’s revenues rose more than 17% since the prior year’s first quarter, earnings were relatively flat. Consequently, shares of Apple Inc. (NASDAQ:AAPL) continued their already puzzling decline.
Taking a longer view, fiscal year 2012 was still a fantastic year for Apple on a financial basis. The company’s revenues increased 45% versus 2011. Amazingly, earnings per share have increased at a compound annual growth rate of almost 60% over the last four years.
Multiple Expansion vs. Multiple Contraction
Google and Amazon are currently valued as high-growth technology companies. Apple, on the other hand, is currently priced as a slow-growth utility. Actually, most Apple investors would probably kill for the valuation of a utility nowadays. Whereas many utilities with earnings growth potential in the low single digits trade for trailing price-to-earnings ratios in the high teens, Apple Inc. (NASDAQ:AAPL) is trading at slightly more than 10 times 2012 earnings per diluted share.
Google trades at 24 times fiscal 2012 diluted earnings per share, and Amazon’s P/E can’t even be calculated since it reported a net loss for its most recent fiscal year. Both Google and Amazon are great businesses, and since I don’t have a crystal ball, I can’t say that neither company can continue to grow at rates that justify their valuations. However, it does seem fairly obvious to me that Apple’s valuation is irrational.