Thursday, December 27, 2007

Apple: Still Not Overvalued

I continue to watch Apple (AAPL) blow away earnings expectations and its stock shatter record highs. In fact, Apple’s stock price broke through $200 a share yesterday for the first time. Of course, the bears are busy bashing while the bulls think $200 is still cheap. I’m going to take you through a quick analysis to find out if Apple is overpriced.

Rick Munarriz at The Motley Fool wrote a nice article today highlighting Apple’s explosive growth, along with some reasons why $200 a share is still undervalued. I agree with his analysis—$200 a share is still undervalued—however, they must continue to beat Wall Street expectations.

The stock currently trades around 32 times forward earnings, not bad considering they have beaten Wall Street’s earnings estimates in 19 straight quarters. The PEG ratio sits around 1.78—which is high—but remember Wall Street is betting on blowout earnings. However, will they continue to shatter expectations?

This is a tougher question to answer, but I think they will—at least in the short-run. The company’s long term growth plans are better than ever. iPod sales continue to grow as more people go digital; the iPhone is in its infancy with room for explosive growth; and there is plenty of room to increase market share in their computer business.

I don’t own shares of Apple, but I’m thinking seriously about taking a small position. If they take a little dip I may pick some up. I’ll keep you posted.

Recommendation: begin accumulating shares of Apple

8 comments:

Andrew Pratt said...

You hit a soft spot in my heart with Apple. As you know, I have been a fan of Apple all year long. I have jumped in and out of it because I could not believe how quickly I was getting huge gains. The company was obviously the highlight of my portfolio this year. They are just dominating right now, and I think their growth with the Mac, iPhone, and iPods are going to make them dominate expectations in the future. I am currently reading the book on Steve Jobs, iCon. It is pretty entertaining, I will have a review of it pretty soon.

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