Why Apple Even Now Is Still Very Cheap
Apple (AAPL) closed yesterday at $392 a share. Many people view this as an expensive stock because of its high share price. However, it's not. On the contrary, it's actually still very cheap in comparison to many other stocks in the market. Let's look at why.
On a trailing price to earnings ratio, usually the most used metric in judging what makes a stock expensive, Apple sits at a very reasonable 15.5. Here is a chart of Apple's share price and P/E ratio over the last year:
via businessinsider.comLet's look at a few other tech companies for comparison:
- Amazon - 92.6
- Netflix - 65.9
- Salesforce - 420.9
- Google - 21.7
And those are just tech stocks. It gets better when you look across other industries.
The kicker is that Apple's revenue is actually still accelerating. Their revenue growth on a year over year basis is an astounding 82%.
Where do other tech companies stand?
- Amazon - 51%
- Netflix - 48%
- Google - 32%
- Microsoft - 8%
It's actually kind of silly when you compare these growth rates to the P/E ratios above. With these growth rates, Apple is still very much a growth stock. So it's no suprise that some analysts think its stock will reach $1,000. And he's not the only one.
Other than these purely financial metrics, here are a few other reasons why I am bullish on Apple:
- iPad's dominance of the tablet market - there still really isn't a “tablet” market — just an iPad market.
- The iPhone has no competition where it matters most — profits. Apple now controls over 66 percent of all the profits in the mobile space.
- iCloud - the first reviews in are positive. iCould should drive people to purchase even more on iTunes.
- The new Macbook Airs are just plain sick.
- China - Apple is rumored to be partnering with China Mobile, the world's largest mobile carrier, offering the iPhone 5 to their over 600mm customers
With all these bullish signs going Apple's way and looking at the stock's fundamentals, it is clear that Apple is still dirt cheap.
Needless to say, I am buying. If the institutions / big boys want it badly, then I want it badly too. I plan on buying and holding while also trading the swings. In fact, just yesterday I picked up some Jan '12 option calls.
To the folks that say, "oh I don't have a lot of money to invest and you need a lot of money to buy Apple for it to be worth your while", I say that's simply not true. It doesn't matter about the share price, just the percentage gain. You could buy one share at $400 and if it goes up to $500 you have still made 25% on your dollars in. And honestly I don't see a surer thing in the market.
Also: Why I'm Buying LinkedIn





