With Apple’s stock price currently hovering under $245, Chad Brand of Seeking Alpha lays forth the argument that the stock is actually undervalued at the moment.
Despite my roots as a value manager, in recent weeks I have been a fairly aggressive buyer of Apple shares. Such an investment may not seem appropriate for a value investor but as the stock has steadily fallen, dropping below $250 per share, it has actually become quite undervalued. And not just relative to its growth rate, but the broad market as well.
Flush with $45 billion in cash and investments ($50 per share) and no debt, Apple sports an enterprise value of about $190 per share. Compare that to $15 of earnings this year and enough catalysts to make next year’s estimate of $18 seem easily attainable, and you have a stock that actually trades at a discount to the S&P 500. And therein lies the core explanation for my heightened interest recently.
Fifty dollars of every share is actually cash that apple has. So the real value the market is placing on Apple in $190. So its Price to Earnings ratio is 13 for this year and 11 for next.
So, one of the largest corporations in America has a P/E ratio almost over 1/3 lower than the current market which is at 19.25. If Apple was valued at the market’s current average, its price should be about $340 based on this years earnings and $396 based on next year’s.