Apple juggernaut gets little respect from investors

Associated Press

NEW YORK

Apple is worth $415 billion, putting it neck-and- neck with Exxon Mobil as the world’s most valuable company. But by standard Wall Street measures, its stock is a bargain.

Why aren’t investors giving the company full credit for its enormous profits and staggering growth?

There’s a big discrepancy between Apple’s earnings and its stock price, and it became even more glaring Tuesday, when the company reported results for its latest quarter. The well-managed launch of the iPhone 4S and the ever-growing popularity of Apple products around the world conspired to send earnings and sales zooming past analyst estimates.

Apple’s sales were $46.3 billion in the quarter that ended Dec. 31, up 73 percent from a year ago. That’s more than twice the revenue of its old nemesis, Microsoft Corp.

Net income grew 118 percent to $13.06 billion. That’s more than Google Inc.’s revenue for the quarter.

Investors cheered —sort of. Apple’s stock rose 6 percent Wednesday, hitting a new all-time high of $454.45.

But analysts who do the math find that, based on the earnings expected this year, the stock should be trading much higher. Before the earnings report, 45 Wall Street analysts who follow the company believed, on average, that Apple should be worth about $556 per share. After the report, the analysts rushed to raise their estimates, some as high as $650.

That means Apple shares trade at a discount of 25 percent to 50 percent compared with its projected earnings for the coming year.

There are two main reasons for the missing hundred-dollar bills in Apple’s stock price.

One is Apple’s policy of hoarding the cash it makes, like a dragon resting on a pile of gold. It doesn’t share any with investors through dividends or buybacks, like many other companies do.

The other main reason for the low stock price appears to be that Apple has grown so big, so fast. Investors and analysts have refused to believe that a company of that size can grow at an annual rate of 73 percent, like it did in the latest quarter.