This article by Andy M. Zaky revisits the theme of Apple’s undervaluation relative to the market. Horace Dediu has highlighted Apple’s poor performance on many occasions and Zaky sets out the case for a reappraisal of the company’s market value.
Suppose the stock’s valuation were to contract further to a 10 P/E ratio within the next two years. Even if we get that level of P/E contraction which would be at a level that is far below the average on the S&P 500, the stock would still trade at $550 a share 2-years from now on the assumption of 25% growth between 2012 to 2013. What happens if the growth stays in the 60-70% range? What happens if the growth continues to accelerate? Neither of those scenarios are anywhere even close to being priced in. In fact, Wall Street is currently modeling for massive contraction in the growth rate. That’s an unwise decision given that Apple just guided fiscal Q1 2012 — this quarter — for 80% earnings growth. Notice, Wall Street is modeling for 25% growth while Apple has guided for 80% growth. Who do you believe?
AppleInsider | Apple: The most undervalued large-cap stock in America