Is Apple [AAPL] undervalued or are investors simply predicting slower future growth for the tech giant?
Matt Yglesias captions:
Back before the crisis, the market was comfortable valuing Apple at something like 35 times earnings. If that pattern continued today, the company would have a staggering market capitalization. Instead, earnings have surged so much faster than share price that it now struggles to maintain a valuation of 15 times earnings.
Some people (including, I think, Dedieu) read this as a story about Apple being "undervalued." I don't see any particular reason to believe that's true from an investment advice perspective. But it is an interesting story about the real operation of American corporations and financial markets. Among other things, the management doesn't seem to particularly care about this even though the value to Apple shareholders of figuring out how to convince the markets to return to the high-multiple scenario would be worth huge sums of money to them.
I'm not sure it's a matter of management "not caring" so much as a sign that investors don't think Apple's growth will continue the trajectory it's been on for the past five years. Back when Apple was valuing at 35 times earnings, investors saw a lot of earnings potential and untapped growth on the horizon. I'm not sure it's possible for Apple to replicate that sort of growth in the coming five to ten years.
Apple will continue to see success with its iPad and iPhone lines, but it's very unlikely that the upcoming Apple TV will be able to drive growth the way Apple's entrance into the MP3 player or mobile markets did in the past. This isn't to say that Apple is on its way out by any means. Plenty of people still don't have iPads. There's lots of room to expand in the smartphone market.
But the massive, rapid growth that has propelled Apple into the second most valuable firm in America simply can't continue.
Management may or may not care about this, of course, but there's probably not a lot that they can do to change it regardless.
All that being said, Apple is still a smart buy in the near-term with plenty of near-term growth on the horizon.
“We believe Apple is likely to announce a dividend during 2012, potentially next quarter when crossing $100B in cash and cash equivalents," said analyst Michael Walkley of Canaccord Genuity. " We view this as very bullish for investors, as we believe a new group of investors seeking dividends would invest in Apple and drive shares higher.”
He added, “We believe Apple is well positioned for very strong [Calendar] 2012/13 sales and earnings growth driven by new product introductions, including the pending refresh of MacBook Air, the iPad 3 launching this spring, an LTE iPhone likely in [Third Quarter Calendar] /2012 and potentially Apple TV exiting [Calendar] 2012.”
Notice, however, that the reasons to be bullish on Apple are all refreshes: iPad 3, a new MacBook Air, iPhone 5. And, of course, the question mark that is Apple TV.
