Photo: Photo by Kevork Djansezian/Getty Images
A few months ago, when Apple’s stock was still going bananas, analysts were competing to raise their price targets the highest.Only wimps, meanwhile, didn’t think Apple was about to blast to $1,000 a share.
A few months later, with Apple stock having imploded, you don’t hear much about those $1,000 price targets anymore.
Suddenly it seems that all Apple bulls were just sheep going along with the herd.
And that’s too bad.
Because Apple’s actually a much more attractive stock now than it was two months ago.
Anytime you can buy something for $530 that you would have to pay $700 for, you should be thankful that you waited. And Apple’s valuation at this level, while not screamingly cheap, is certainly attractive.
Apple is trading at about 12-times trailing earnings and cash flow.
- 12-times earnings… for a company that, two months ago, everyone viewed as the sexiest and most exciting company in the world.
- 12-times earnings–a below-market multiple–for a company growing revenue and earnings much faster than the market.
- 12-times earnings for a company that, only a short while ago, everyone on earth agreed was a “must own.”
True, 12-times earnings is hardly a “floor” valuation.
If Apple’s fundamentals really go to crap, the multiple could go a lot lower.
Microsoft, for example, which is still a healthy company that is printing money, trades at only 8-times earnings.
And in the old days–the days before the late-1990s tech bubble, hardware companies like Apple used to trade at much lower multiples than they do today.
The rule of thumb on Dell, for example, was to buy it at 8-times earnings and sell it at 12-times.
So, yes, Apple’s multiple could go a lot lower.
Apple isn’t defunct yet.
- Yes, Apple is seeing some management turmoil.
- Yes, it has shot its wad from a new product launch point of view.
- Yes, the big new product that everyone was expecting Apple to have launched by now–the iTV–seems to have disappeared.
- Yes, Apple’s growth rate is slowing rapidly.
- Yes, a former employee is now trash-talking Tim Cook
- Yes, Apple’s profit margins are likely to decline, perhaps permanently, making earnings grow more slowly than revenue.
- Yes, Apple’s competitors have caught up with the iPhone and iPad.
- Yes, the iPad Mini is too expensive and has a disappointing screen.
- Yes, Apple’s “network effect” depends on its market share, and, yes, globally, Apple’s share of the smartphone market it invented has dropped to a paltry 15%. (This is a serious potential problem. Part of the huge value of the Apple app ecosystem is that developers have a big incentive to build for the platform. If that incentive switches to “Android first,” Apple is in trouble. The company, in other words, is at risk of reliving the same history it lived in the 1990s, when Microsoft’s market share overwhelmed it and it was reduced to a tiny niche player.)
12-times earnings ain’t a bad valuation for a company as exciting as Apple. And the sentiment on the stock has suddenly gotten so lousy that analysts are referring to it as “the next Sony” and not being pelted with garbage and rotten fruit.
Normally, a good time to buy is when everyone else is starting to panic and sell.
Doug Kass, the portfolio manager at Sea Breeze Partners, for example, has started to buy. Kass, who told everyone to dump Apple at $700, now thinks Apple’s valuation is too pessimistic. So he has reversed his position and started to buy it.
Yes, Apple could go a lot lower. It could even go to ~$425, as one bear, Jeff Gundlach, has predicted.
But unless the company really falls apart next year, one would hope that it won’t go too much lower. Meanwhile, if the iPhone 5 and the iPad Mini turn out to be big hits, or Apple finally pulls that iTV rabbit out of a hat, everyone could suddenly become convinced that the stock is heading to $1,000 again.
Business Insider Emails & Alerts
Site highlights each day to your inbox.