Apple’s got a 16 P/E

Stock (Symbol) Stock Price

Apple (AAPL)


Data is as of Expected to Report Sector

November 1, 2010

Jan 24


Sharek’s Take
David SharekIt seems like AAPL is high. One of the top stocks in the market, up from around $200 to $300 in 2010. Everybody knows about it. Everybody owns it (seems like it anyway). Not only is AAPL not overvalued (or over hyped) the stock is immensely undervalued. Apple is selling for only 16 times earnings. Top tech products iPad and iPhone selling as fast as they can be produced.There were two negatives last quarter:

  1. iPad sales of 4.2 million were below projections of 5 million due to Apple not being able to produce enough iPads.
  2. Gross profit margin was 37% compared to 39% two quarters ago. That may be due to lower margin Mac sales being above estimates and higher margin iPad’s coming in below projections.

Looking ahead, the next growth driver for Apple is iAds, a mobile advertising network that will eat into Google’s territory. But there’s more than enough to go around. The mobile ad market is going to double this year and Steve Jobs says iAds will take half the moble-ad spending in the second half of 2010.

One-Year Chart

When I look at the one-year chart, I’m most impressed with the 2009-2011 profit outlook. AAPL make around $6 in 09 and might make triple that amount just two years later. This company has put out triple-digit profit growth in each of the last four quarters. Although growth looks to slow to the 30% range during the next six months, AAPL consistently beats the street.

Earnings Table
Sales shot up 67% and iPhone revenue leapt 91% and Mac sales rose 27%.

Apple is just killing earnings estimates every quarter. No reason to think that won’t continue.

Annual Profit Estimates popped higher. This company could earn $25 in three years. A 25 P/E on $25 in earnings would be a $625 stock.

Estimates increased for the next four quarters. 28% growth is expected on average, so a 35 P/E is not too much to ask. Nice 32% growth expected four quarters out.

Fair Value
Apple is worth 35 times earnings. So next year’s fair value is $661. Not only that, these estimates could continue to increase.
Ten-Year Chart
Apple is such a darling. The stock’s compounded at 43% a year during the last decade. The Last breakout was around $280 so this stock is not-at-all extended. Do you see that dip around $100? I had clients calling me, telling me to sell. I kid you not.
Power Ranking Bottom Line
Growth Portfolio

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Not only is Apple clearly the best stock to own in the the 17 stock Growth Portfolio and the 10 stock Aggressive Growth Portfolio, but this could be one of the best deals on a premier growth stock that we have seen — or may ever see.

Apple is firing on all cylinders. Its the best company in the world. This stock has a 16 P/E — I can’t believe it. AAPL could double tomorrow and be selling where it should be. Considering Annual Profit Estimates keep rising, $30 in earnings in 2013 is realistic, and a 33 P/E would put the stock at $1000.

Aggressive Growth Portfolio

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