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Apple at a record high may still be a pretty cheap stock

Key Points
  • Apple snapped higher this week, after its earnings report, and even at a record high it was cheaper than the broader market.
  • If Apple was priced like the S&P 500, it would a ways to go to catch up—more than $30 per share.
  • If Apple was priced like the tech sector, it would be up more than $40 per share.
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Apple stock, even trading near looks far cheaper than the overall stock market.

In fact, by one common metric, if Apple were priced just like the index, it would be trading at $187 from its current $156. If it were valued like a tech stock, it would be priced at $204, or an energy company — a whopping $409.

"Compared to the rest of the market, Apple has a very reasonable valuation," said Paul Hickey, co-founder of Bespoke Investment Group.

That's because the price-to-earnings ratio for Apple is just 17.7. Simply put, that's the multiple you get when dividing the stock price by its earnings per share over the last 12 months. The multiple for the S&P 500 as a whole is just above 21.

For the S&P technology sector, the multiple is 23.1, but that includes stocks like Facebook, which has a multiple of 38.5, and Google parent Alphabet, which trades at 34.2 times trailing earnings. The energy sector has a multiple in the high-40s, and consumer discretionary and staples stocks trade at just about 22 times earnings.

Bespoke compared the P/Es of the major S&P sectors to Apple, and Apple trails most of them, except for financials and telecommunications.

Source: Bespoke Investment Group

"When you get a stock that becomes so big, larger companies are harder to grow than smaller companies so the growth potential for a stock like Apple might be a little more limited than other stocks in the tech sector that are smaller," said Hickey.

Apple stock vaulted higher after earnings Wednesday, briefly touching a new high of $159.75. It was slightly lower Thursday, at $155.82 per share.

Many of the analysts who follow Apple have a price target above $170, with a good number in the $180 range. There are a few above that level, with a high estimate at about $208. The low estimates are around $150 to a low of $140 per share.

Source: Bespoke Investment Group

"After a people ask is Apple overvalued? Has it gone too far, too fast? When you make the comparison to other sectors, it's still more cheaply valued. A different question to ask is are some of the utility stocks or consumer good stocks trading too high?" said Hickey. If Apple were priced like a utility, Hickey said it would be trading at $167 per share and a multiple closer to 19.

Apple is a different animal than other tech stocks because of i. "Especially after earlier this year when someone like [investor Warren] Buffet buys into Apple. It's almost a tech company with a dash of consumer goods company involved in it," Hickey said.

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