Why Apple Is Undervalued at $600

U.S. economyThe shares of Apple Inc. (NASDAQ/AAPL) cracked $600.00 last Thursday and the company had a market-cap of $561 billion, making it the largest in the world based on market cap. Analysts and investors are scrambling to see how high the stock can go having already surpassed its one-year consensus price target of $598.57. The stock has since retrenched to below the target; but, based on what we are seeing with the preliminary sales of the hyped-up “iPad 3,” Apple should be able to continue to surge ahead and move higher.

Apple is presently trading at 12.13X its fiscal 2013 earning per share (EPS) estimate of $48.29 per share and a price/earnings to growth (PEG) ratio of 0.70 based on an estimated average five-year earnings growth rate of 19.49%. A PEG below 1.0 means that Apple’s price-to-earnings multiple assigned by the market is trading below its estimated five-year growth rate, which means an undervalued situation. But how can a $600.00 stock be undervalued, many of you are probably asking?

Here’s what I think. The growth rate may be conservative based on the surging sales of the company’s products including the “iPad,” “iPhone,” “Mac,” “iTouch” and so on. Remember; Apple sells other good products other than its iPad and iPhone, but it’s the superlative sales of its iPad that are turning heads and making Wall Street constantly revise its estimates.

The threat of this of course is that the iPad will see sales slow and rival tablets pick up market share in which the iPad currently holds over 60% of the tablet market, according to pundits. Apple has sold over 55 million iPad units since it debuted in 2010, including a whopping 40 million sold in 2010.


Rivals such as Research In Motion Limited (NASDAQ/RIMM) and Samsung would like to believe this, but, honestly, I doubt it will happen, as the iPad is ingrained into the minds of the consumers as the product of choice. Apple is making Research In Motion fight for its life. Samsung has an excellent tablet, but you have to convince consumers to switch and that will not be easy. Just ask Hewlett-Packard Company (NYSE/HPQ), the company that fired its chief executive after deciding to exit the tablet market, which in hindsight may have been the correct move. Motorola produced an excellent tablet, but the company decided to axe it, likely feeling that the marketplace was too crowded, with an iron-clad control by Apple.

The demand for the iPad continues to be frenzied. Launched in Asia and Europe on Friday, buyers lined up with some camping overnight just to make sure they got the iPad first.U.S.and Canadian buyers also swarmed to buy the new iPad. Then there is China, which will be an absolute gold mine for Apple.

The iPad is here to stay and will only get better. I also think the tablet will eventually make the PC and laptop cumbersome and we have Apple to thank for that.

Not only is the iPad hot in China, but so is the travel market, which I discussed in The Super-hot Chinese Sector.