Time To Buy Apple

| About: Apple Inc. (AAPL)

I have been very interested in Apple (AAPL) stock since I recently saw it drop under $450 per share, and I would like to add my own analysis into the mix. I was told to buy Apple by fellow investors as the share price was increasing from $550 per share up to the $600s, but I opted to put my money elsewhere. However, now that Apple stock is at $420 per share and continues to have revenue and earnings growth, based on Apple's 10-Q report, I think now is a good time to buy Apple shares.

On the surface, the 10-Q report did not look good. However, when you factor in the 12-week quarter, as opposed to the 13-week quarter of Q1 2012, there is approximately 27% revenue growth and over 8% earnings growth.

Here is a table of Apple's annual results from 2009 to 2012, with minimum and maximum share price thresholds, and important values based on those share prices for those fiscal years. Also, I have added 2013 predicted revenue and earnings

Year ended September 29 2009 2010 2011 2012 2013*
Revenue $42,905 $65,225 $108,249 $156,508 $184,135
Net income $8,235 $14,013 $25,922 $41,733 $44,445
Diluted EPS $9.08 $15.15 $27.68 $44.15 $47.00
# shares 907005 924712 936645 945355 **939058
stockholder equity $31,640 $47,791 $76,615 $118,210 $162,655
Stock Price (Min/Max) $78.20 $146.40 $180.70 $293.53 $275.00 $422.86 $354.24 $705.07
P/S (Min/Max) 1.65 3.09 2.56 4.16 2.38 3.65 2.14 4.26
P/E (Min/Max) 8.61 16.12 11.93 19.37 9.93 15.28 8.02 15.97
Market Cap (Min/Max) $70,928 $132,786 $167,095 $271,431 $257,577 $396,070 $334,883 $666,541
EV (Min/Max) $39,287 $101,145 $119,304 $223,639 $180,962 $319,454 $216,672 $548,331
EV-to-Earnings 5.22 13.48 9.21 17.20 7.45 13.15 5.49 13.90

* Predicted 2013 revenue and earnings of $184 Billion and $44 Billion are based on annualized Q1 results with flat growth for the rest of the year.

** The numbers of shares used in calculating per share data for 2013 is an estimate based on the 10-K filing, which states the following:

In March 2012, the Company's Board of Directors authorized a program to repurchase up to $10 billion of the Company's common stock beginning in 2013. The repurchase program is expected to be executed over a three-year period with the primary objective of neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs.

I don't expect flat growth in the remaining 3 quarters, but the flat growth serves as a good baseline. I believe that Apple can achieve the predicted 2013 figures with only a minimal refreshing of existing products, such as the iPhone 5S. Any new product lines are likely to increase the value of Apple shares even further, especially leading into 2014.

I believe that if AAPL can deliver solid earnings for the next 3 quarters in line with the 2013 annualized figures, then we are very close to the bottom for AAPL share price for the entire 2013 fiscal year. I will use some ratios based on flat growth for 2013, and the closing price of $420.05 on 3/4/2013. Along with the data from the previous table, there is strong evidence that we are near the bottom.

Projected P/S 2.14
Projected P/E 8.87
Projected EV-to-Earnings 5.79

If you compare these ratios to the 1st table, then you can easily see how the numbers are very low in comparison to the previous 4 years. The P/S is at its 2012 low, which is the lowest P/S ratio since 2009. The P/E ratio of 8.87 is close to the minimum P/E ratios of both 2012 and 2009, which were 8.02 and 8.61. Compared to the high P/E ratios of 15.97, 15.28, 19.37, and 16.12 of the last 4 years, the current price is a huge discount.

Based on the 2013 predictions and past thresholds, I've projected some possible minimum and maximum share prices, based on the listed criteria.

2013 Share Price Thresholds (Based on) Min Max
2012 P/S ratios $419.62 $835.32
2012 P/E ratios $356.45 $709.80
P/S ratios (2008-2012) $303.82 $898.58
P/E ratios (2008-2012) $356.45 $1,330.70
2012 EV-to-Earnings $406.54 $780.36
EV-to-Earnings (2008-2002) $394.73 $927.05

I believe the most important numbers in the Share Price Thresholds are the 2012 EV-to-Earnings and the EV-to-Earnings from 2008 to 2012. Notice that at $420 per share, there is very little downside when compared to the EV-to-Earnings ratios of the previous 4 years. In this regard, the share price is only about 2% away from the 4-year low.

As the stock price approaches $400 per share, I expect very strong resistance preventing it from dropping any further until Q2 earnings are released, and there may be a large spike leading up to the Q2 earnings release, so you'll want to buy your shares weeks in advance.

I expect that Q2 results will be in line with or better than the annualized 2013 projections, and the stock price will start climbing back towards the $600 levels.

I'd recommend buying at any price below $425, and sell when the EV-to-Earnings goes over 10.0. These are my own opinions, and you are expected to do your own analysis before investing in anything!

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.