Apple (AAPL -1.22%) has reached a tipping point. Shares are off more than 35% from their highs, indicating that the market doesn't believe in a future where Apple's robust earnings growth continues to knock it out of the park. As a result, Apple trades with a P/E of 10, and in the mid-single-digits if you back out the $137 billion in cash it owns. Compared to the market's P/E of around 17, Apple shares look downright attractive. The market is either underestimating Apple's future earnings power, or it's signaling that there are structural issues ahead for the King of Cupertino. According to well-respected NYU valuation theorist Aswath Damodaran, there's a 90% chance that Apple shares are undervalued, which he believes to be worth somewhere around $609.
No game changer baked in
Not only are investors discounting Apple's current earnings power, they're underestimating Apple's future business prowess. We're forgetting that Apple is the type of company with an unmatched track record in terms of changing industry conventions. It changed the music industry with the iPod and iTunes store, it defined the smartphone industry with the iPhone, and the iPad dawned a new era of tablet computing. What other company has this kind of track record ever, let alone since 2001, when the iPod was introduced? Over the last 12 years, Apple created tremendous business opportunities for itself and its shareholders.
The Steve Jobs factor
The common perception is that all of the success that Apple reaped over the last 12 years has been largely attributed to Steve Jobs. Without Jobs, investors have grown concerned that Apple has lost its visionary way to continue on its path of excellence. I can't blame them, but do you really think Apple's genius was all related to just one individual? You don't think Jobs assembled a team, cultivated the culture, and instilled core values, all of which allow Apple to "Think Different" without him?
No catalyst in sight?
At current levels, the market has discounted Apple's potential to deliver yet another home run business. I think the opportunity for shareholders lies within the fact that Apple may surprise the world again with another business it chooses to reinvent. The good news is there's a ton of value in Apple shares while you wait patiently for a catalyst to excite interest in Apple's ability to innovate.
