Mark Thomas'  Instablog

As a value investor Apple for years didn’t attract my attention. Then in December 2009 with the stock trading about $190 I went back and looked at the stock and its fundamentals for a second time. . One of main criteria to determine how expensive or cheap a stock is valued is the eneterpise value to revenue formula. I’m normally attracted to stocks that aren’t in excess of two. That means the market cap + net debt does not exceed 200% of one years gross revenue. Technology stocks normally trade at 3-5 revenue so I have owned very few in my entire life. However I had noticed that Apple only traded around three times revenue which might make it a relative bargain to most tech stocks. Because they make physical hardware and not software where profit margins can be higher the street has awarded them a lower valuation than other stocks at their heights. The stock then was trading at three times revenue and only 15 times earnings.

However now with the rapid growth and domination of categories they are now being awarded higher price to earnings and enterprise value to revenue valuations. This is a very simple thesis to understand why you should hold the stock long-term. You are buying a stock in a company that has reported some of the most amazing growth in the worst economic environment since 1980-82. The company is growing at 35-40% per year and minimum 30% earnings growth for about 17 times my $15 estimate of earnings per share for 2010 and only 13 times my 2011 estimate of $20 per share in earnings.They also have $42 per share in cash with no debt so when you buy the stock at $256 your almost only paying $214.

In conclusion,  your paying about an average  price to earnings ratio for the best performing large cap company in all of America right now. This stock is a strong buy and my price target for the end of 2010 is $310 or a 21% gain.  My price target for the end of 2011 is $364 or 42% higher than today’s price.

Disclosure- I always remain long a core position in Apple (AAPL) and trade smaller positions back and forth to enhance returns.