For every 10 analysts and market prognosticators who think Apple is doomed, there’s one who thinks it’s too cheap to ignore. Daren Fonda:
Few stocks are as confounding as Apple. The world’s most valuable company—worth $521.7 billion—is hauling in some $50 billion in revenues every three months. It sits on $216 billion in cash and securities. And it earned a record $18.4 billion in the three-month period that ended December 26, 2015. No other company comes close to numbers that titanic.
Numbers don’t lie, but apparently numbers are not what moves a stock price.
Based on traditional valuation measures, shares do look cheap, trading at a bit more than 10 times estimated earnings for calendar year 2016. That’s about one-third less than the price-earnings ratio of 15 for the S&P 500. Apple also looks like a bargain compared with other tech firms. Google’s parent company, Alphabet (GOOGL, $748.30), trades at 22 times estimated 2016 earnings. Facebook (FB, $109.11) clocks in with a P/E of 38.
So, numerically, Apple’s stock is a bargain. So, why the rush to dump AAPL and buy GOOGL?
In 2013, Apple’s stock lagged the market after the firm made minimal changes to the iPhone 5’s successor. The shares returned 7.6% that year, compared with a 32.4% surge for the S&P 500. In 2014, the stock took off, climbing 40% as investors anticipated the launch of the iPhone 6, a larger-screen device that became a blockbuster.
All Apple needs is another hit product and the stock will rise again. But GOOGL has a single product and the stock keeps rising. Why?