April 2010
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Day April 21, 2010

Apple continues to trade at a discount to growth

Apple’s latest earnings showed growth of nearly 90% (following a nearly 50% growth the previous quarter.)

Normally, growth like this is rewarded with a significant P/E ratio of 30 to 40.  Apple enjoyed P/E of 50 as recently as 2007.  However Apple’s P/E ratio dropped to about 22 after earnings.

Although higher than during the worst of the recession, this low P/E either reflects continuing pessimism in the overall sustainability of the economy or a continuing discounting of Apple’s potential growth.

Excluding the nearly $45/share cash and looking at a forward twelve months earnings of 15, the forward P/E is an almost embarrassing 14.

It’s possible that after a few quarters of above 50% growth Apple’s P/E and hence its valuation will return to more normal (PEG ~1.0) levels.  A P/E of 30 at today’s trailing 12 months earnings would put the stock above $350/share.

Non-US iPhone sales approaching 70% of volumes

[AT&T] activated 2.7 million iPhones during the quarter…Apple [announced] yesterday that it had sold 8.75 million iPhones overall during the quarter

via AT&T Activates 2.7 Million iPhones in Q1 2010 as Growth Slows – Mac Rumors.

About 31% of the units sold in Q1 were activated on the AT&T network.  The iPhone is reaching a more balanced global distribution but still has a long way to go.