Apple Looks Undervalued Based on Past Earnings

Apple Inc (AAPL) releases its latest earnings on April 23rd. I'd expect Apple to easily beat estimates. The company should meet the Street's guidance which, barring a miss per last quarter, should give the shares a bounce.

Having seen a huge sell off in the shares recently, it is always worth a look at its fundamentals. Looking back at its earnings since 2003, and according to Valueline's figures, it has EPS of $.10c and expects EPS of $5.15 for full year 08 . This would represent a yearly compounded EPS of 119% .

The share price should match this growth, however; over the same period the compounded annual return was only 84%. Comparing Apple to Research in Motion (RIMM) over the same period and the dates that I used for Apple gives me a return on the EPS side of 103%, but the share price returned 120%.

As you can see, and with so much negative talk about Apple's future earnings, it does look unjustified. It could be a rare chance to buy such a great growth stock and expect Apple to close the gap before the end of the year.

Disclosure: Author has a long position in AAPL

Comments

[samij:]

your analysis is somewhat unconventional; i think it's more common to value the company's share price to match the expected growth, not the historic growth.

2008 Apr 11 02:42 AM

[adamcz:]

Before you can complain about price growth not matching earnings growth, you need to prove that the share price at the beginning of your study was exactly Apple's intrinsic value.

Obviously if share prices at that point were fifty times what the company is worth, we shouldn't expect them to go anywhere but down, even with 100% earnings growth.

2008 Apr 11 07:06 AM

[Anthony Dad...:]

Apple will continue to grow earnings. It may be possible apple will exceed even $7 in EPS in 2009. This stock will be $300 soon.

2008 Apr 11 07:33 AM

[top_tier:]

Growth stocks are all about the future, trite comment, yes, but especially true in Apple's case. There's an interesting Business Week release this a.m. www.businessweek.com/t...

This artcile encapsulates the longs views pretty accurately. When considering the small market share Apple still currently holds in all its business categories sans the MP3 market and factor in the huge growth potential in it's other business segments, growth which has been demonstrated in previous quarters, factor in the huge cash position, that continues to grow...well, using an old school blue chip collar smoke stack logic of "intrinsic" value is indeed trite. Historic growth isn't relative, but ignoring the mounting evidence of what the future holds for this company IS relative, the evidence is such that I wouldn't bet against it.

2008 Apr 11 09:28 AM

[dig:]

um, they didn't miss last quarter, they gave conserative guidance for this quarter ... also most of the sentiment out there on future earning is positive. not to mention the fact that apple is priced as a growth stock so looking at past earnings means very little.

2008 Apr 11 10:27 AM

[Constable Odo:]

Somebody mentioned that Apple will be at $300 soon. It's April 11, 2008 and Apple isn't even above $150. Doesn't anyone bother to take the economy into consideration? Anytime some other company reports bad earnings, it drags Apple back into the mud. So even if Apple has a pretty good year and sells 11 million iPhones, it doesn't mean Apple will even get to $200 by the end of this year. You people keep plugging in grand numbers and are getting a little over-enthused. This stock appears very volatile and at a whim will drop like a stone whether it deserves it or not. I'm long on Apple, but I've already seen it get crapped on early this year and I don't forget those sort of things that quickly. You can keep pumping up Apple all you want, but WS still thinks Apple is a company that mainly makes music players for teenagers. Guaranteed WS will focus on low iPod sales and overlook Leopard and Mac laptop and desktop sales. Maybe if Apple sells 14 million iPhones (the amount of BlackBerry smartphones sold last year) that will wake WS up, but I wouldn't count on it.

I'm just saying that you all shouldn't get carried away with absurdly high price targets since Apple hasn't even reached the lower ones yet for this year.

2008 Apr 11 03:28 PM

[User 175563:]

Apple has consistently beaten consensus and guidance weather it is conservative, disappointing, flat, etc. Yet, Apple analysts' calculations consistently fall short because they base it on conventional models designed for conventional consumer products companies. The need to be enlightened that Apple is simply in a class by itself, and requires a separate calculus.

After 10-12 quarters of missing actuals, times by wide margins, you would think they could adjust, after all, they're professionals. They need the "Zach Bass Apple Multiplier." Have them contact me, I developed this tool using tacit knowledge, empirical data, and perspicacious methods. It works like this; whatever the guidance is, they'll beat it.

-zach bass
zachbass.blogspot.com

2008 Apr 11 10:10 PM

[raman kandola:]

AAPL would be a big test in this coming weeks. The company as a whole is looking to bounce back to the $180's. RIMM bounced from the $100's to $120's within 2 weeks. Closing to their 52 weeks high's.
We are still awaiting for the China Mobile deal, and the 3G itself would sell more than 20 million units. The 10 million projected would be way higher, than the fiscal year.

P/E is in the low 20's.

2008 Apr 12 09:16 AM

[Neil Anderson:]

Looking forward to Apple's earning report on April 23.

2008 Apr 19 10:39 PM