Apple’s high flying stock has been the darling of Wall Street many times in the past decade. So, how does a stock that’s risen 150-percent look cheap? Jason Schwarz figured it out in Seeking Alpha:
The current perception among traders is that Apple is expensive because of its 150% rally off of the March 2009 lows. Seriously, if I polled 1000 traders I believe that 95% of them would look at the 33 p/e ratio on their screens and tell me that they’d love to own Apple but it is just too expensive. What they don’t know, is that the 33 P/E is about to drop significantly and will set up the opportunity of 2010.
Something is about to happen to AAPL. Apple, Inc. will implement new accounting methods and end the silly subscription period for iPhone sales. The end result is that the P/E will drop like a rock.
What should Apple stock be priced at according to its historical P/E norms? Based on expected earnings per share of only $11.70 in fiscal 2010 (many think earnings per share according to the new accounting standard will end up closer to $13) the stock should be priced at $263 today and should reach $376 by September 30, 2010.
See? My investment in Investing for Dummies paid off.