After massive drop, is Apple cheap enough?

Wed Apr 27, 2016 3:23pm EDT
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By Rodrigo Campos

NEW YORK (Reuters) - If Apple (AAPL.O: Quote) could cash in the value it lost in the first minute of trading on Wednesday, it would be nearly enough to buy General Motors, Target or Caterpillar.

In fact, the $48 billion-or-so the iPhone maker's stock shed at its session low could buy any one of nearly 400 components of the S&P 500. Various measures of valuation suggest the stock is probably still cheap - and has been for some time - but that may not motivate buyers concerned shares may fall further on saturation in iPhone sales.

"I would not be surprised in the near term for the stock to fall to the high $80s or low $90s, there's no catalyst right now," said Channing Smith, managing director at Capital Advisors in Tulsa, Oklahoma. The firm manages about $1.4 billion in assets and Apple accounts for roughly 4 percent of their holdings, he said.

Apple shares were recently down 6.3 percent at $97.81.

Apple is still the largest publicly traded company by market capitalization in the world, valued at more than $500 billion after peaking near $775 billion in February 2015. But the iPhone maker's stock lost as much as 8.1 percent the day after it posted its first quarterly revenue decline in 13 years and set targets below analyst expectations for the next quarter.

At its session low of $95.68, Apple was almost 40 percent below its intrinsic valuation of $153 per share according to StarMine, which projects prices based on earnings per share growth five years forward. That number will likely fall following Tuesday's earnings miss and reduced expectations.

Even compared to the median target price of 46 analysts, currently $121, the stock trades at a discount of almost 20 percent.

Apple's 12-month forward price to earnings ratio stands at 11.1 compared with an average of 17.5 over the past 10 years -roughly the life span of the iPhone - according to Thomson Reuters Datastream.   Continued...

People walk in front of a branch of U.S. technology company Apple in Zurich, Switzerland April 5, 2016. REUTERS/Arnd Wiegmann