This Apple Is Sweet

Apple just reported one of the best quarters in its history, with a spectacular performance by the iPhone - we sold more phones than RIM.  We don’t yet know how this economic downturn will affect Apple.  But we’re armed with the strongest product line in our history, the most talented employees and the best customers in our industry.  And $25 billion of cash safely in the bank with zero debt.

- Steve Jobs, CEO Apple

When I read through earnings releases by Google (GOOG) and Apple (AAPL), I always think about comic book super heroes with their ridiculous bulging muscles and teeny, tiny waists.  These guys just print money.

At its current price around $100 a share, Apple’s market cap is about $90.5 billion.  However, like Jobs says, the company has $24.5 billion in cash and short-term investments on its balance sheet - and no debt.  That’s not a misprint: $24.5 billion.  That works out to $27 a share.  Therefore, when you pick up Apple for $100, you’re really getting $27 in cash and short-term investments and paying $73 for the business.

That’s one sweet business.  We’re talking about $4.8 billion in net income over the last four quarters and $9.1 billion in free cash flow.  Because the iPhone has become a substantial revenue generator for Apple and because it accounts for it on a subscription accounting basis, net income now substantially understates the actual earnings of the real business.  For the first time this quarter, the company reported “adjusted sales” and “adjusted net income” to reflect this.  If you take the midpoint of net income and free cash flow, you’re looking at say $7 billion in real earnings.

Since we’re paying $66 billion for the business, we’re talking about a trailing multiple below 10 and a forward multiple around 8, for Apple, which perhaps, is the best consumer products company on the planet.  That is RIDICULOUS CHEAP.

Last year, people were running over each other to own Apple and Google.  Now, with both more than 50% off their highs, the valuation is completely compelling - and nobody wants to touch them.  Rest assured, the markets are completely efficient and rational.

Disclosure: Top Gun is long Apple shares.

Comments

[imurphit:]

Apple will be fine in the long run. CASH is king!... Jobs to buy Dell and shut it down! Just kindin'... LOL

Mac OS X is the key to Apple's success.

Bring on 10.6 and new iMacs, Mac Pros...

Long since 1997 @ $4.00 a share. Staying long thru 2010! See you at $650 a share.

See why? Here is link:
web.me.com/filmflamtv/...

2008 Oct 22 10:52 AM

[.crazylegs..:]

The valuation is a joke. It would trade at $300 in a decent market.

2008 Oct 22 10:59 AM

[Tom B:]

You "get it", Greg. Once the Mac makes stronger inroads into Enterprise and into the overseas consumer PC, you'll see a REAL monster stock.

2008 Oct 22 11:17 AM

[Kinnick:]

Couldn't have said it better myself. This is an excellent play for those that can sit and wait for a couple of years. Sure, might get rocky in the short term and go another 15% lower, so go in to the stock in increments. 50% now, 25% if it drops, another 25% if it drops further.

Gonna make me some iMoney.

Long AAPL, accruing more shares.

2008 Oct 22 04:24 PM

[Jon T:]

Hard to believe but there really IS something EVEN better than cash...


..products like OSX, MacBooks, iPhones and iPods. These are what are GENERATING the cash.

Bit like the adage - give a man meal and you feed him for a day. Teach him to farm and he feeds himself forever...

2008 Oct 23 09:29 AM

[mollytjm:]

exactly what i've been trying to tell people all year. the industry got caught with its pants down, thinking Apple coudln't possibly do well entering, late, the phone game. always underestimated, Apple innovation changed the game. they knew it wasn't about the PHONE. it's about having a pocket computer and producing innovative and better products CONSISTENTLY.
other companies have just rested on their laurels (for lack of a nicer word). that they did this was incomprehensible and blind. i don't know what it would take to catch up, at this point... too much, i think, because Apple will not rest. I'm long Appl and at these prices, it's the best buy in town!

2008 Oct 23 11:04 AM