Market Insider

Could Apple Be Cheapest $500 Billion Tech Giant Ever?


Appleshares topped $500 for the first time Monday amid a broad market advance, bringing its market capitalization to just over $460 billion.

Workers apply the Apple logo to the exterior of the Yerba Buena Center for the Arts in preparation for an Apple special event January 26, 2010 in San Francisco, California.
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That makes the iPhone and iPad maker the most highly-valued publicly traded company in the world right now. While it’s not the first tech company to reach a market cap of nearly half a trillion dollars, some analysts say that at these levels Apple is in a class all its own.

Apple’s stock has gained more than 30 percent since the death of co-founder Steve Jobs in October, resulting in a gain of $100 billion in its market cap.

As a point of perspective, 95 percent of Standard and Poor’s 500 companies have a market cap below $100 billion.

Bespoke Investment Group founder Paul Hickey argues even at these prices Apple is still not expensive relative to the rest of the market. The stock has a price to earnings multiple of about 14 times this year’s earnings, right in line with the S & P 500. But, given Apple’s massive $100 billion in cash holdings, Hickey says the stock’s valuation is well below the broader market.

“You take out the cash,” Hickey calculates, “and it has a multiple of ten. It is cheaper than the market.” He argues, that’s what makes Apple’s phenomenal rise all the more remarkable.

“When you’re the biggest company in the world, you’re usually not growing faster than every other company out there. And you’re trading at a multiple that’s less than the rest of the market. It’s really unique,“ Hickey says.

Apple shares appear overextended to Collin Gillis, BCG analyst. "Apple is at the top of its game," says BCG analyst Collins Gillis, but he says the stock’s momentum may be a problem. “There is concern that people are chasing after them on price and Apple is going to have a difficult time being both a high-end premium player as well as a mass-market player."

Apple is on track to become one of only a handful of companies ever to reach the $500 billion market capitalization mark, if it reaches a price of $543 share. Mega Caps Intel and Cisco peaked at those lofty levels during the start of the last decade, while Microsoft’s peak valuation at well over $600 billion in 2000 remains the highest market cap ever.

“The difference here is the multiple for those stocks at the time was in excess of 30 times earnings,” says Jefferies analyst Peter Misek, who has a $599 price target on Apple. He rates the stock a Conviction Buy.

Bespoke’s Paul Hickey calculates that if Apple were valued at a bigger growth premium it would shatter the records books.

“If it traded at 25 times this year's earnings, it would be a trillion dollar company now," he says. “There are plenty of companies in the S&P that trade at 25 times earnings.”

Hickey says technically, Apple’s stock may be getting overextended, trading well above its 50-day moving average. Three times when it reached what he calls “over bought” levels over the last two years the stock has seen modest pullbacks, before continuing on its upward climb.

Still, Jefferies’ Peter Misek believes even if Apple shares retreat in the short term, the company’s earnings growth should remain strong well into next year because of its pipeline.

“This is going to be the biggest product launch year in Apple’s history,” Misek says. He expects the company to announce a new iPad 3 with a screen that will be easier to read in daylight this spring, and a new update of the MacBook Air, and the much-anticipated Apple TV device and platform later this year; products he says which will bear the stamp of the late Steve Jobs.

“I think Steve left the company a road map for the next ten year and put his fingerprints on the products they’ll unveil for the next three years,“ he says.

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