With Apple Back Near Lows, Should You Buy?

It had appeared that Apple (NASDAQ: AAPL  ) had bottomed out in April after hitting $385 just days before earnings. When the company reported its most recent figures, it took time for investors to digest the new information since Apple made a shockingly large increase to its capital return program and also said it would be partially be funding it with debt.

Shares rallied as high as $465 over the following weeks, a gain of 21% from those lows, as investors seemingly began to appreciate the $50 billion in additional planned share repurchases that Apple would be making through 2015.

However, Apple has now given up nearly all of those gains since then and traded below $389 this morning -- just a few dollars away from tapping a fresh 52-week low.

With shares revisiting those lows, let's revisit Apple's dirt-cheap valuation.

Apple's earnings multiple is now back into single-digit territory, trading at just 9.3 times earnings. For reference, the broader S&P 500 is currently trading at 18.6 times earnings. Backing out the $154 per share in net cash on the books brings that figure down to 5.7 times earnings ex-cash.

Speaking of Apple's immense cash position: the growing money mountain is a key reason why Google (NASDAQ: GOOGL  ) just surpassed Apple in enterprise value. If we include other metrics like enterprise value-to-EBITDA and price-to-free-cash-flow, Apple looks even cheaper relative to the search giant.

Company

EV/EBITDA (TTM)

P/E (TTM)

P/FCF (TTM)

Apple

6.1

9.3

9.5

Google

14.8

26.1

22.9

Sources: Yahoo! Finance and Reuters. TTM = trailing 12 months.

However, there's something to be said about the growth deceleration that Apple is facing. Last quarter, Google's revenue growth of 31% outpaced Apple's 11% gain up top.

It turns out that Apple's primary hardware rival Samsung also trades at cheap multiples. The South Korean conglomerate is currently trading at eight times earnings and 9.9 times free cash flow. It seems that the investor pessimism is more about the high-end smartphone market that's becoming saturated, while the low-end to mid-range segments are where the growth is now coming from. Google is able to escape this pessimism in part because smartphones aren't its core business.

But with rock-bottom prices, investors are effectively ignoring the possibility of Apple entering new product categories and market segments. Even though Apple's smartphone business is maturing, the company is getting much less respect than other mature tech giants. On a P/E basis, Microsoft is nearly twice as expensive as Apple, despite Windows 8's cold reception.

Apple still has "game changers" up its sleeve. When it decides to launch into these new markets, investors will regret not giving the Mac maker more respect.

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Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 28, 2013, at 11:50 PM, lojikfool wrote:

    My goodness Evan, I've never seen a case of euphoria turned hysteria in my entire investing career. Sure I've been burned by Apple in the last 6 months (but it doesn't hurt too much when you started buying at $85). I bought all the way up and am buying all the way down.

    Your (EV-LTE) / FCF of 5.7 gives a FCF "Yield" of 17.5%

    I don't think enough people understand what this means, think about it for a second - even if Apple does not grow it will have enough cash to buy back all of it shares at current prices in 5-6 years.

    For a company that's still growing.

    And

    - Global smartphone sales to grow +30% this year so even if the have a smaller slice it's a bigger pie.

    - they're still expanding in mature markets

    - they're still exploding in emerging markets

    - Japan Telecom deal to come

    - China Telecom deal to come

    - they're still exploding in enterprise and education

    - iPhone "mini" to come this year

    - iPhone "maxi" to come next year

    - Still killing it in tablets

    - Payments to come

    - Gaming to come

    - iWatch to come

    - iTV to come

    - More surprises to come!?!?

    I never thought i'd say the words but this is a "Sure thing" over the next "1-3+ years".

    Which Fool recommended to sell your house and buy Apple a few years ago, I think we're in the same place now...I just did it!

    If I'm wrong it's going to put a serious dent in my 12 year average 16% cagr.

  • Report this Comment On June 29, 2013, at 1:01 AM, iphonerulez wrote:

    I just bought 45 more shares of Apple at $390 a share. I'd love to see a 20% upside in a month or so. Meanwhile, I can still enjoy the dividends. Some of the bad news I hear about the death of Apple are pretty scary, but Apple's fundamentals just don't seem to be that poor. It's true I can't see into the future like most but I'm hoping the iPhone will continue to be a big seller in all markets and the iPad isn't doing too badly either.

  • Report this Comment On June 29, 2013, at 2:34 AM, JH34 wrote:

    iphinerulez

    You say in your comments that you cannot look into the future like most. Who can look into the future? You bought AAPL acts good price. Don't listen to all this noise by the so called experts. I hope aapl goes to 600 but who knows ? This was loved at 700 now despised at the current levels. Makes no sense hopefully you will make money.

  • Report this Comment On June 29, 2013, at 7:34 AM, petergrynch1 wrote:

    I still own Apple but bought it near its recent top and would dump it if I got my money back. The company's new CEO appears tone deaf to shareholders and Apple is now a reactive company rather than a market leader.

    They NEED a 10:1 stock split. Without that they will remain a play toy for hrdge funds.

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