Is Apple’s Stock Still Undervalued?
Opening at over $400 per share this morning, investors are wondering if Apple (NASDAQ:AAPL) stock is still worth buying. The fundamentals on Apple do not reek of an over-valued company. The stock still trades at a P/E of 15.72, with balance sheets backed by $76 billion in cash and a line of products that continues to dominate in the most competitive areas of the technology market. CNN Money reports that one Romanian mathematician and professor at the University of Paris, uses the “PEG” metric to gauge the company’s trading value. The “PEG” stands for, P- $EG (the difference between share price and cash holdings per share divided by annual growth rate). Two years ago, when Apple was trading at $260 a share, he calculated that the company had a PEG of .25, with 1 representing a properly valued company.
Today Seeking Alpha did an update of the calculation, using a share price of $404, here’s what they found. “Based primarily on the PEG ratio, Apple’s shares (NASDAQ:AAPL) are even more undervalued now than they were a year ago. The company’s earnings over the past 12 months have grown at the rate of 90% per year while its stock is up about 50%, moving Apple’s PEG from 0.25 to 0.17.”
“In order to be conservative and to avoid ridiculously high valuation predictions,” said the writer, “I will assume further P/E compression (12 and 10) and earnings growth cooling off in 2012 and 2013 (respectively, 80% and 60%). Barring any market meltdown, I predict that one year from now Apple (NASDAQ:AAPL) will be at $550 or more, $650 by the end of 2012, and at least $850 by the end of 2013.”
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