BREAKINGVIEWS - Streaking Apple still looks safe valuation bet

Thu Apr 21, 2011 11:41am IST

The Apple Inc. logo is seen through raindrops on a window outside of the New York City flagship Apple store in New York, January 18, 2011.  REUTERS/Mike Segar/Files

The Apple Inc. logo is seen through raindrops on a window outside of the New York City flagship Apple store in New York, January 18, 2011.

Credit: Reuters/Mike Segar/Files

Related Topics

-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

By Robert Cyran

NEW YORK (Reuters Breakingviews) - Apple may be streaking, but the stock still looks a safe valuation bet. The $315 billion tech giant's sales rose an astounding 83 percent in its second quarter, ending on March 26, from the same period last year. Moreover, Apple's operating margin increased slightly, meaning profit almost doubled. Yet adjust for cash, and the stock trades at a discount to the market. That seems too cheap.

The growth of a company ought to slow as it becomes bigger -- and Apple is now the second largest in the United States by market value after oil giant Exxon Mobil. But its year-on-year sales growth, already uncommonly strong, accelerated compared with the previous quarter.

It's not all perfectly smooth sailing. Supply chain hiccups are stopping punters getting their hands on the iPad 2, launched last month. Customers wanted the latest edition, which is probably why iPad sales last quarter fell short of what analysts on average expected. But now Apple has what it calls "the mother of all backlogs" of customers waiting. That's a high-class problem, and Apple has a history of solving others like it.

There should be more to come. Sales of the iPhone more than doubled from a year earlier. Yet smartphone penetration in the United States and other developed markets is still accelerating. Moreover, Apple's products are increasingly hot outside its traditional strongholds. Revenue in Asia, excluding Japan, was up more than 150 percent in the quarter from a year earlier and accounted for almost 20 percent of sales. Even the company's Mac computers did well, perhaps benefiting from the halo of its handheld gadgets.

Investors seem somewhat skeptical, all the same. Strip Apple's $66 billion hoard of cash and investments out of its share price, and the stock trades at only about 11 times expected earnings for this fiscal year. Sure, Apple's growth will slow someday, and it could end up wasting some of its cash. Even so, the current valuation suggests a reversal of the current momentum sometime soon. A company that looks near the top of its game -- despite getting only partial attention from ailing Chief Executive Steve Jobs -- deserves more of the benefit of the doubt.

CONTEXT NEWS

-- Apple reported sales of $24.7 billion in the quarter ending March 26, the second period of its 2011 fiscal year. That's an increase of 83 percent from the same period in 2010. Profit surged 95 percent to $6 billion.

-- The company sold 18.7 million iPhones in the quarter, more than double the units sold in the same period last year, and 3.8 million Mac computers, an increase of 28 percent. Apple also sold 4.7 million iPads -- a decline of 36 percent on the prior holiday quarter and a figure potentially affected by a runoff in the old model and the launch of the iPad 2 on March 11. There is no prior year comparison for iPad sales because the device was first sold in April 2010.

(Editing by Richard Beales and Martin Langfield)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Pricing Controls

REUTERS SHOWCASE

India-China Relations

India-China Relations

India says to defend China border after standoff ahead of Xi visit.  Full Article 

Importing Iron Ore

Importing Iron Ore

As mining curbs bite, India offers market to glut-hit iron ore.  Full Article 

Lower Output

Lower Output

IOC cuts refinery output as rains hit fuel demand - source.  Full Article 

Drug Approval

Drug Approval

Epirus, Ranbaxy win India approval for arthritis drug copy.  Full Article 

Farming and Technology

Farming and Technology

Climate smart farmers get tech savvy to save India's bread basket.  Full Article 

Rajan Speaks

Rajan Speaks

RBI chief Rajan says limiting reliance on foreign debt.  Full Article 

India-Vietnam Ties

India-Vietnam Ties

India tightens Vietnam defence, oil ties ahead of China Xi's visit.  Full Article 

Debt & Equity Deal

Debt & Equity Deal

KKR to lend $175 million to GMR Infrastructure - source.  Full Article 

Preparing for IPO

Preparing for IPO

Alibaba boosts IPO as demand strengthens.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage