Apple Won't Be On Sale Like This Forever

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) has taken a beating lately, off 23% from the all-time high it reached only two months ago.  Several factors have played a role in the decline, including supply issues with the iPhone 5, the Apple Maps issues, and the market’s reaction to the introduction of the iPad Mini.  This is a tremendous plunge, especially for a stock that is not used to dropping.  To put this move in perspective, the only other time in the past decade Apple fell over 20% in 2 months was in late 2008 in response to the overall market collapse.  And even then, Apple’s losses simply followed the broader market.

What people seem to have temporarily forgotten, in the midst of all of this pessimism, are all of the reasons to buy Apple despite these minor hiccups.  In no particular order, here are my top 3 reasons Apple is heading back to its previous highs and then some:

1.)    Apple has the ability to not only introduce innovative new products, but to change the game with their new products.  Apple’s iPod has been around for just over a decade, and it took almost 10 years from its introduction to become the dominant product in its segment like it is today, and is still growing in popularity.  The iPhone has been in the market for just over 4 years and has not even begun to capitalize on its potential to dominate the smartphone world.  According to one analyst’s report, the iPhone made up only 8.3% of the worldwide mobile phone market during a recent quarter.  To put the amazing potential of the iPhone in perspective, over 80% of mp3 players sold are iPods.  That means that if the iPhone is a much of a game-changer as the iPod (and some say it is more so), it has only grabbed about one-tenth of its potential market. 

2.)    Apple has achieved profit margins that are unheard of in the hardware industry.  In the previous 12 months, Apple has achieved a gross profit margin of 43.87% and rising.  Net profit margins are currently around 26.67% and also climbing, which is already a full 5% above the industry average. 

 3.)    Apple is extremely cheap after this recent sell-off, trading at only 12.3 times TTM earnings.  According to analyst estimates of earnings, Apple is trading at only 11.5 times 2013’s projected earnings of $47 per share, and at only 9.67 times 2014’s projected earnings of $56 per share.  This doesn’t even take into account Apple’s enormous stockpile of cash on hand.  Earnings are expected to continue to grow, with analysts anticipating $66.79 per share in 2015.  This translates to a 3 year average growth rate of 19.2% annually.  These multiples are simply too low for a company growing this rapidly.  Just for comparison, Google (NASDAQ: GOOG) trades at 20.28 times TTM earnings, and is only projected to grow at 16% annually for the next 3 years.  Microsoft (NASDAQ: MSFT) trades at over 14 times TTM earnings and is only projected to grow at a 6% rate.  Clearly, something is out of whack here!

This recent free-fall Apple is experiencing is making the stock more appealing every day.  I would wait a few days until it is more evident that the downtrend is coming to an end (as of now, it doesn’t look like it).  However, at current levels Apple is extremely attractive, and could very well be the golden investment opportunity of 2012-2013.


KWMatt82 owns shares of Apple. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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