Apple: Still Super Cheap

11/11/2015 8:00 am EST


Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

The world's most valuable company did it again, reporting another record quarter and beating Wall Street estimate, notes Ian Wyatt, editor of Million Dollar Portfolio.

Apple (AAPL), one of the largest holdings in our model portfolio, reported fiscal fourth quarter earnings; sales grew by a rapid 22%, reaching $51.5 billion.

During the quarter, 62% of the company's sales were from outside of the US. Meanwhile, sales in China grew by 99% and now account for nearly one-quarter of Apple's total sales.

Expansion in China continues to be a priority. Apple opened seven stores in China during the quarter and plans to open 40-50 more in 2016.

It's worth noting that Apple's international sales have been weighing on results, due to the strength of the US dollar. If the strength of the US dollar is isolated from the results, Apple sales would have been higher by another 8%.

Quarterly earnings were $11.1 billion or $1.96 per share. Those bottom line results compared nicely with last year's fourth quarter, when earnings were $8.5 billion or $1.42 per share. On a per-share basis, earnings grew 38%.

One closely watched metric is the company's profit margins. During the quarter they increased to 39.9%, from 38% one year ago. Those numbers indicate that Apple is earning more money per dollar of sales.

Apple continues to be one of the most shareholder-friendly companies, with a huge stock buyback and dividend program.

Apple now has more than $205 billion of cash on its balance sheet. That means the company's cash stash has increased 33% in one year.

In my view, Apple stock is still super cheap. For fiscal 2016, Apple is expected to report earnings per share of $9.80. And looking forward to fiscal 2017, the EPS target is $10.82.

That means that Apple stock is trading at 12 times 2016 EPS. Even if we look back at EPS from the last 12 months, Apple stock is trading at less than 13 times earnings, which is a 25% discount to the market.

Frankly, that discount is completely unwarranted. Apple has a long history of innovating, creating breakthroughs, and delivering outstanding products to its customers. That should continue in 2016 and for many years beyond.

The fact that Wall Street is skeptical of Apple's long-term prospects offers a big buying opportunity today. I continue to believe that we'll see Apple shares rise above $200 per share by the end of 2017.

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