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Announcing Apple's 33 Percent-Off Sale!
Posted Sep 24, 2008 01:15pm EDT by Henry Blodget in Investing, Computers, Electronics
From Silicon Alley Insider, Sept. 24, 2008:
It's happened again: The stock of the most beloved company in the world, Apple (AAPL), has dropped more than a third off its highs. Of course this means that no one likes it anymore.
Well, wake up, people! If you really think that Apple's going to take over the world, this is the time to love the stock, not when it claws its way back toward $200 again.
Will Apple be affected by the global economic slowdown? Almost certainly. Are Apple's margin guidance (and current revenue estimates) for the coming year concerns? Absolutely. Could Apple's stock really fall out of bed if we go into another Great Depression--dropping to, say, $50 a share? Of course. But so could any stock. (These are stocks, not Treasury bonds--if you can't stand the heat, get out of the kitchen).
But all that aside, Apple's stock just isn't that expensive anymore. At $127, the stock is trading at about 25X trailing earnings (that's trailing, not analysts' hallucinations about what is going to happen over the next few years).
Even better, thanks to the extraordinary cash-flow characteristics of the booming iPhone (get cash now, recognize revenue over 24 months), Apple's valuation on an enterprise value to free cash flow basis is even more attractive: 15X.
What the heck is "enterprise value to free cash flow"?
That's the value of Apple's actual business ($91 billion) relative to the free cash flow the company has generated over the past year ($6 billion). For a company with Apple's future promise, market position, and growth rate, 15X just isn't that expensive.
Does it mean there's no downside to Apple's stock? Again, of course not: Apple's cash flow could get smashed by a recession, a stock market crash could compress the multiple to 7-10 times, etc. There's always downside. But at 15X, there's a lot less downside than there was a few months ago, when Apple was trading at $190 a share and everyone loved it.
See Also:
Sorry, Bailout History Suggests Stock Market Will Keep Falling
Microsoft's Real Problem: The Second Coming of Apple
57 Comments
Bill - Wednesday September 24, 2008 01:34PM EDT
I have to agree. Apple at $130 is a no brainer. Even under a worst case scenario, it will double in 2 years or less. I am loading up.
Jack deee - Wednesday September 24, 2008 01:36PM EDT
Yeah yeah , and MSFT has a PE of like 10. So what makes apples so much better? do you really think they are set to convert china ? india? Get a grip the real growth is in lower margin software and hardware. Mac is cool mac is sweet but it is for disposable income. People are fickle they once flocked to sony the way they swarm around apple now. Who will be next?
Josho - Wednesday September 24, 2008 01:45PM EDT
I agree, especially with the holidays approaching. Apple ALWAYS does well over the holidays, just look at the past! It seems people are always willing to buy that new Mac/iPhone/iPod regardless of the market's standing. I'm loading up too.
Mike - Wednesday September 24, 2008 01:46PM EDT
So it went down by 30% before, and has done it again, so that means I should buy it?
Yahoo! Finance User - Wednesday September 24, 2008 01:49PM EDT
Apple's projected earning growth is in single digit according to its own forecast. So a PE of 25X is still high.
DavidB - Wednesday September 24, 2008 01:49PM EDT
I'm not sure apple is a buy even at 130. The G-phone is just another competitor that will eat into apple's margins. And in a recession people are going to shop for value computers like DELL and HP. Apple is a risky buy until the economy starts to turn up. I will probably reduce my apple exposure and buy Walmart and Target for this downturn.
__A_YAHOO_USER__ - Wednesday September 24, 2008 01:51PM EDT
Apple is good Company.........It will recover that is for sure..........yes it is down. in sales but it does not mean forever.It has good product once confidence come the sale omce again shoot........Relax......
russ - Wednesday September 24, 2008 02:05PM EDT
Apple at $125 a share is a good buy. If it goes down to $105 - $100 a share, load up as you will double your money in two years. Apple products is the best on the market and all teenagers and young professionals want to be seen with one. You can build lots of wealth by investing in Apple stock. I have.
Put - Wednesday September 24, 2008 02:13PM EDT
yeah yeah i know the QCOM 1000$ day buying nov 100 puts 60% after tanksgiving day
brad - Wednesday September 24, 2008 02:17PM EDT
I love apple...but I'm waiting for the Google phone if it will use Verizon. I hate att.
JoshS - Wednesday September 24, 2008 02:19PM EDT
If appl drops to $27, I might consider it.
someoneimportant@ymail.com - Wednesday September 24, 2008 02:23PM EDT
Apple's valuation is stupid high given the current market. That being the case long term Apple is still going to be aroung making money. So you may have a short term hit, who knows, but long term you will likely beat the market.
samp - Wednesday September 24, 2008 02:25PM EDT
if the bailout is not done by tomorrow afternoon..we go down 1000 on the dow and aapl will be at 110....if no bailout over weekend we are down 2000 from here and aaple will be under 90... careful..... if the banking system freezes up and everyone pulls money out of moneymarkets....it will take 5+ years for apple to come back and hit 100... you have to be an absolute fool to right this article.... aaple down 33%..goog down 50% already...x down 50%, cme down 60%, leh down 100%, bsc down 100%, gs down 50%, should i go on....
reno marioni - Wednesday September 24, 2008 02:48PM EDT
Nokia is cheap now, I completely agree with a PE under 10! It still ships over 400M phones per year!
Yahoo! Finance User - Wednesday September 24, 2008 02:50PM EDT
Ladies and Gentlemen, The word is that Apple is freezing hiring, including open reqs that had already been approved. Has anyone seen that movie before? If this is so, is it a sign that Apple's demand is better or worse than previously expected? Timberrrrr katy bar the door.
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Yahoo! Finance User - Wednesday September 24, 2008 01:24PM EDT
henry's got such a stiffy for apple...