Apple Inc. (AAPL): Will It Hit a New Low?

If Apple hits the March EPS consensus of $10.15 on the dot, it will have earned $41.95 per share over the past four quarters. That would represent negative earnings growth during the quarter (down from $12.30 EPS a year ago), which would inevitably make for some gloomy headlines.

That might scare some investors, especially if they compared possible headlines of “Apple Earnings Fall 17%” with ones earlier this week of “Samsung expects first-quarter profits of $7.7B, up 53 percent.” Of course, Apple will still beat Samsung in absolute dollars with closer to $9.6 billion in net income, easily topping the $7.7 billion in operating income that Samsung is expecting (Samsung’s net income will be lower after taxes and other expenses). But again, investors tend to focus on the year-over-year comparisons, in which case Samsung will look better than Apple.

A numbers game
If the net result is that Apple Inc. (NASDAQ:AAPL) drops closer to $400, it would be trading at around 9.5 times earnings. That’s about where it trades now, as it still fails to garner proper respect from the Street, especially when you consider that the broader S&P 500 (INDEXSP:.INX) currently trades at 17.9 times earnings.

Apple will inevitably add to its cash this quarter, which will make it even cheaper relative to its earnings power. If Apple adds “only” $10 billion in cash (it added $12.6 billion in Q1 2012), it will have $147 billion in cash, or $157 per share. At $400 per share and consensus EPS, that all translates to 5.8 times earnings ex-cash. Yes, 5.8.

Apple may head lower, perhaps even next week, but it shouldn’t.

The article Will Apple Hit a New Low? originally appeared on Fool.com is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends and owns shares of Apple.

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