Behind the Money

Apple May Be ‘Dirt Cheap,’ but It Can Get Even Cheaper

Where's Apple's Bottom?
Where's Apple's Bottom?

The valuation figures on Apple look so cheap that it boggles the minds of many traders, but that doesn't mean the stock is necessarily a buy right now, they said.

Apple trades at a forward price-earnings ratio (minus cash) of an astounding seven, according to Goldman Sachs. And revenue will increase a whopping 17 percent this year, estimates the firm. What's more, the stock sports a dividend yield of nearly three percent.

"It is dirt cheap right now," said Michael Murphy of Rosecliff Capital. "But I had to get out because it was trading on headlines and 'The Street' is way too emotional about it."

The stock was slammed by double digits Thursday after reporting iPhone sales that missed expectations. Apple is now down 36 percent from its all- time high reach in September shortly after the iPhone 5 launch.

The problem is that Apple has become a stock detached from the fundamentals and is now a momentum beast fed only by the next hot product, investors like Murphy said. These figures -- which others would salivate over for another stock -- simply don't matter.

"Apple shows the reason why one can only trade when the technical and fundamentals are running in tandem with the other," said Dennis Gartman of The Gartman Letter. "When they are at cross hairs, 'tis best to stand aside."

The list of statistics analyst list as reasons to buy the stock at these levels are a mile long, but investors simply aren't listening.

For example, Bank of America Merrill Lynch estimates that that earnings per share will increase by 20 percent in 2014 and by 15 percent in 2015. Many of them see that dividend yield getting even bigger as the company deploys its unprecedented $137 billion cash hoard.

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So where's the bottom? Analysts argue it will come either as Apple falls to a point that the deep value guys simply can't resist any longer or when the company releases yet another revolutionary product.

"Apple says it has not run out of ideas, and we think the stock discounts little innovation at these levels," said Steve Milunovich of UBS in a note.

One thing all can agree on is that this has to be on one of the most confusing stocks to come down Wall Street in a long time.

"It is too good to be true," remarked Howard Lindzon, investor and CEO of StockTwits, when looking at a list of these bottom basement valuation figures. "We are all missing something at the moment. You would think it was a marijuana penny stock."