I'm a Buyer of Apple On This Selloff

Is the relentless selling ever going to end?

Apple (AAPL) reported first quarter of their fiscal year earnings after the close today and while the just completed quarter was sparkling their forecast for next quarter was underwhelming.

In the just completed quarter, Apple earned $1.58 billion on $9.6 billion in revenues - increases of 58% and 35%, respectively.  They sold 2.3 million, 2.3 million iPhones and 22.1 million iPods.  I’ve heard people say that Ipod sales were somewhat weak but overall the quarter looks really good to me (AAPL 1Q FY 2008 Earnings Release, conference call transcript).

The problem was their forecast for the current quarter.  They forecast revenues of $6.8 billion and earnings of 94 cents a share - while analysts were expecting $6.9 billion and $1.09.

I think this sort of confirms everybodies fears of a slowdown in consumer spending.

Apple’s shares are being CRUSHED in the after hours - down 11-12% in the $137-$138 range.

Frankly, I’m a buyer here.  With $18.5 billion of net cash and short term investment on their balance sheet and 900 million diluted shares that works out to $20.50 in cash and short term investments per share. 

So you’re really paying $117-$118 for Apple’s business.  That business generated $4.1 billion in net income and $6.2 billion in free cash over the last 4 quarters for trailing multiples of 30 and 20.  If they can grow each 25% over the next 4 quarters we’re looking at forward multiples of 24 and 16 - for a 20 average.  Even if growth is only 15% the forward multiples are 26 and 17 - for a 21.5 average.  That seems like a reasonable price to pay for such a phenomenal business. 

From a technical standpoint, Apple seems poised to break below its 200 day moving average around $145 on the open tomorrow and would be down about 30% this year - from its close at $198 on 12/31/07:

Disclosure: Top Gun has no position in Apple (AAPL) shares.

Comments

[John Brown:]

Whats up with Apple stock. It's market cap is down 33% since Dec 25th...That is 40 Billion dollars

2008 Jan 23 10:40 AM

[Davey:]

In case you had not noticed, the entire market is on its butt. Problem is the banks are upside down on bad loans. Don't worry, the calvary (your tax dollars) are soon on their way to once again bail out the crooks.

2008 Jan 23 10:52 AM

[John Brown:]

The entire market is not down 30% in the last 30 days.
Will tax rebates sell more Ipods moving AAPL closer to $175?

2008 Jan 23 11:12 AM

[Ralph F:]

Apple's a momentum stock. You don't buy momentum stocks that lower their guidance.

2008 Jan 23 11:38 AM

[bosch1974:]

Wow, an article on Seeking Alpha that has actual facts! Very well written!

2008 Jan 23 11:39 AM

[gofer:]

Some valid points on the article and I see the disclosure that Top Gun has no pos on Apple. But what about Greg Feirman himself? Does he himself have a pos on Apple?. Relevant since he says he's buying on this selloff.

2008 Jan 23 11:46 AM

[34% Huh?:]

"The problem was their forecast for the current quarter."

Apple does this every time. What you have to look at is revenue. They are guiding 6.8, which is 29% YOY. In all of F2007, the highest "Apple Guided" YOY increase was 18%, and highest actual was 29%. And Apple always beats their guidance. You have to ignore their EPS estimate.

I think a lot folks are going to look stupid when Apple reports Q2. Look for around $1.20 EPS.

2008 Jan 23 12:40 PM

[Ricker:]

And as someone has said, 18 Billion in cash is not even counted! This aapl company has really got their sh-t together. Maybe get someone else to announce the numbers, especially when its a fear freaking marketplace. And........how about a stock buy back right about now? Come on Steve, just a little buy back.....

2008 Jan 23 09:05 PM

[Tom B:]

From "Research in Motion Still Looks Good:

""Mr. Fan also dismissed competition fears stemming from IBM's (IBM) expected announcement of a Lotus Notes email package for Apple's (AAPL) iPhone.

The analyst told clients:

We continue to believe competition in the medium/high end enterprise remains at least one to two years behind RIM"

Translation: Rimm running scared. Note: Motorola is forecasting a bad quarter; they are cratering. Put it all together; Wall Street had little love for Apple, but destined to dominate the handset biz.

2008 Jan 24 08:54 AM