The Macalope Daily: Well, that's one opinion
It’s apparently debate week chez le Macalope and he’s got a doozy for you today.
Let’s start with this piece by Leonid Kanopka over at Seeking Alpha (tip o’ the antlers to Dave Barnes):
The stock is currently trading in the upper $300s and appears to be highly overvalued…
Huh. Really. That’s not what Andy Zaky says (tip o’ the antlers to Daring Fireball). That’s not what he says at all. As a matter of fact, he says the complete opposite of that, that Apple is ridiculously undervalued.
It’s interesting to compare Kanopka’s article with Zaky, by the way. Where Kanopka hurls a mishmash of conventional thinking at the wall like an angry gorilla being kept in a cage lined with conventional thinking to see if any of it sticks, Zaky uses actual numbers. Like an analyst. Imagine that.
First and most important is the untimely demise of Steve Jobs. … I feel with his death, Apple’s will only follow.
ONLY STEVE JOBS COULD MAKE GOOD PRODUCTS. APPLE DOOOOMED.
Most Apple products are price-sensitive…
Like the free iPhone 3GS.
Yes, OK, he said “most,” but even that’s overstating things. “Some” is probably more accurate these days.
The market is saturated with Apple products.
Seriously. After years of hearing how insignificant the Mac’s market share is and how Android is trouncing the iPhone in market share (“The only metric that matters!”™), Kanopka actually wrote that.
Apple is the largest US corporation by market capitalization, and the law of large numbers means it cannot continue to grow at this blistering growth rate in the future (hence, the stock is overheated).
Any time someone brings up the “law of large numbers” ask them when, exactly, that law is supposed to kick in. And then just smile wryly as they splutter for five minutes before pointing behind you and yelling “Hey! Is that Snake Plissken?! I thought he was dead!” and then running away.
Microsoft is not the only competition. It seems like every day Apple has a new competitor, the competition that is stacking up very well are the Google (GOOG) Android phones.
But not so well that Apple hasn’t saturated the market. But it has low market share because it can’t handle the competition. But too many people have its products. But not enough do. It’s complicated.
There is skepticism about whether Apple can come up with a new revolutionary product after the iPad. It is its revolutionary products that have made the company a success, and now with its visionary gone, I don’t foresee any groundbreaking products coming out any time soon.
Somebody seems to be list padding because this is pretty much a rehash of the first item. But, look, if a guy like Kanopka can’t foresee any groundbreaking products coming from Apple then CASE CLOSED.
If the economy does not pick up and the company does not cushion its freefall, we could see new lows into 2012—maybe $85.
Wow! He really wrote that! No, look, see? It’s right there! “Freefall”! It’s unbelievable!
Now let’s look at Zaky’s piece. In contrast to Kanopka’s vague and contradictory warnings, Zaky provides actual data. Rather a lot of it. Actually, a whole mess of it. A surfeit of data. A plethora. A veritable ass-ton of data.
The stock is now trading at an extremely low 13.1 trailing P/E ratio. We’re talking about a valuation level that Apple hasn’t seen in nearly a decade – this despite the fact that the company grew its earnings 82% this year which is the highest in over 7 years. We’re talking about a valuation that is more than 10% lower than the lowest point during the financial crisis.
If you don’t have a head for numbers or the time to see someone bury a ridiculous argument with words, numbers, charts and logic, we can jump to the conclusion.
The whole point of this article is to establish one thing and one thing only. That Apple is extremely undervalued contrary to what you might hear in the financial press. By demonstrating that the company is this undervalued, we will then be able to make a very compelling case for why this cannot go on forever. Eventually, Apple will hit an inflection point where this 2-year phase of P/E compression comes to an abrupt end. Apple is already valued below the S&P 500. If the earnings continue to come in anywhere close to 50% which is far below the 70-82% we’ve seen in the past 3-years, then the stock will have to rise significantly in order to merely maintain its depressed valuation.
Seeking Alpha has a history of trotting out articles in the name of providing time to “different opinions.” But there’s “different” and then there’s “completely bat guano insane.”
(Disclosure: the Macalope holds an insignificant number of Apple shares.)
[Editors’ Note: Each week the Macalope skewers the worst of the week’s coverage of Apple and other technology companies. In addition to being a mythical beast, the Macalope is not an employee of Macworld. As a result, the Macalope is always free to criticize any media organization. Even ours.]