Apple Is Still Undervalued

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If corporations are people, then I think I just heard Apple's (NAS: AAPL) head going through the roof.

The king of Cupertino posted blowout numbers again, hitting records in nearly every category.  Revenue clocked in at $46.33 billion, up 73% from last year, while net income more than doubled to $13.06 billion with an EPS of $13.87. Gross margin improved from 38.5% last year to 44.7%.

With growth like that, you'd expect Apple to have a huge multiple hanging around its neck, like rival Amazon, which is trading at a P/E of 99. Apple, meanwhile, is valued at a price-to-earnings ratio of only 16.14. That puts it in the range of stalwarts like Procter and Gamble (NYS: PG) , which has a P/E of 16.50. If you can tell me the last time you saw people lined up on the street to buy the newest version of Tide, I'll reconsider my thesis.

Wake up, already
When it comes to Apple, the bears still seem to think they're smelling honey. Despite being one of the best-performing stocks over the last ten years, Apple gets only three out of five stars on our CAPS rating system, a middling pick. The skeptics list a variety of complaints like unsustainable growth, labor issues with supplier Foxconn, and the loss of Steve Jobs as reasons not to invest. The only problem is that Wall Street has already baked in these low expectations.  Unless iPhone and iPad sales dramatically drop off, this stock looks seriously undervalued. According to my valuations, the market is predicting Apple to grow only between 3% and 5% annually over the next 10 years, about the speed P&G is expected to grow.

The critics continue to insist that Apple's market leadership will soon fade, but they forget that the company's been rewriting the rules of the tech game for the last ten years, since the iPod first came out.  And I see no reason why fans won't keep shelling out their hard-earned cash for the updated models of Apple's products, just as they've done in the past with newer versions of the iPod and the iPhone. It would be great to see Apple come out with another category killer like the iPad, but the amazing thing is that they don't even need to do that to be successful.

That's how you play Survivor
Apple's detractors seem to think the iPhone-maker's halo will soon disappear, but they may first want to look at the companies lying in its wake. As the chart below shows, the tech giant's rivals Research in Motion (NAS: RIMM) , Hewlett Packard (NYS: HPQ) , and Dell (NAS: DELL) have all tanked over the last five years as Apple has torched the market.

In many ways, betting against Apple really means you're betting on these struggling companies to resurrect themselves.

Fellow Fool Anders Bylund recently compared Apple to fallen giants Kodak and Sears, and those companies' heydays lasted for generations. If Apple is anything like those two former powers, then I say the party's just getting started.

Apple's made a killing in the last ten years in the mobile sector, and our experts at the Fool have a line on three more stocks that are cashing in on the booming smartphone and tablet markets. Check out their report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution," to find out who they are. You can a get a free copy by clicking right here.

At the time this article was published Fool contributor Jeremy Bowman knows haters gonna hate. He holds no positions in any of the companies above, but plans to buy shares of Apple in the near future. The Motley Fool owns shares of Amazon.com and Apple.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Procter & Gamble, and Apple; writing covered calls in Dell; and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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