11 of 11
BACKNEXT
Apple
Apple
Market cap: $284 billion
2009 Revenue: $43 billion
P/E ratio: 15.7
Dividend yield: N.A.
Ticker: AAPL

At $315 a share and up 47% for the year, Apple looks expensive. We thought so when we wrote about it in September. But after poring over Apple's recent financials, we're now convinced it's cheaper than it appears and that sales of the already hot iPhone and the iPad are set to go stratospheric. A concern we raised was Apple's vulnerability to a key misstep -- such as the iPhone 4 antenna problem that grabbed headlines this past summer. Yet during the July-to-September quarter, iPhone sales thrashed expectations, skyrocketing 91% vs. the same period last year.

What's astounding is that Apple did it with one hand tied behind its back. The iPhone isn't yet sold via the dominant wireless carriers in the U.S., China, Japan, and South Korea. Once Apple sheds exclusivity deals such as AT&T's in the U.S., iPhone sales should get a huge boost. Industrywide, smartphone sales increased 96% last quarter, according to Gartner Research. Apple's market share doubled in Canada and France once the top carriers started selling the iPhone.

Then there's the iPad. Apple sold 3.3 million of the tablet computers in its first three months, surpassing the debuts of both its own iPhone and the netbook category. Don't bet on a sophomore slump: Sales of iPhones and netbooks rose 246% and 155%, respectively, in their second year, says Bernstein Research.

Analysts predict Apple will earn $19.85 a share in the 2011 calendar year (up from $16.73 in 2010), which translates to a price/earnings ratio of 15.7. Sure, this is higher than the S&P 500's 13 P/E, but Apple's earnings have increased an average of 45% over the past three years, while the S&P's earnings have declined 4% per year.

Moreover, Apple's P/E is arguably inflated. Its free cash flow -- money actually flowing into company coffers -- is 14% higher than its reported net income, notes Bernstein analyst Toni Sacconaghi. Apple has over-reserved for U.S. taxes on foreign profits, but, according to Sacconaghi, the company is moving to reduce that, which will have the effect of boosting Apple's reported earnings and reducing its P/E. "The stock is definitely not overpriced," says Sacconaghi, "especially not for a company so well positioned in such fast-growing markets."



More galleries
Last updated December 20 2010: 2:27 PM ET
All stock prices as of Nov. 30; price/earnings ratios based on estimated 2011 earnings.
In a post-recession world, you need serious experience to guide your portfolio. So we sat down with five pros who have the right guidance for these troubled times. More
Solar, wind, and other green stocks got hammered in the downturn. Now might be a great time to buy. More
Looking for cash flow and worried about a bond bubble? Your best bet might be high-dividend stocks, which offer much better value right now than fixed-income alternatives. More
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.