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Why Apple Needs a Stock Split

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- The historically low price-to-earnings ratio of Apple (AAPL - Get Report) has emerged at an unusual time.

In the most recent quarterly earnings report, Steve Jobs issued the following statement: "With quarterly revenue growth of 83% and profit growth of 95%, we're firing on all cylinders."

As a company, Apple has never been better. As a stock, AAPL has never been worse. If you use Jim Cramer's rule of thumb, which suggests an investor should be willing to pay two times a company's growth rate, Apple should be trading at a P/E well over 100. How long has it been since you heard someone say Apple should be trading at a 100 P/E? The very thought borders on the ridiculous!

Jobs and the Apple executive team have been flawless in running this company, but they deserve an F when it comes to unlocking shareholder value. Netflix (NFLX - Get Report) trades at an 80 P/E, Amazon (AMZN - Get Report) at 83, Baidu (BIDU - Get Report) at 75 and Apple at ... 16.

Using more accurate metrics, Apple trades at a one-year forward P/E of 9 excluding cash, and a two-year forward P/E of 3 excluding cash. Why can't this stock keep up with the company growth rate? The answer lies in the heart of the stock action, rather than the company action. In order to improve the stock action, Apple needs to grasp the following four points:

1. Sophisticated investors believe that stock splits are a waste of time. To these intellectuals, discussing a stock split is basically an admission of one's stupidity. After all, it does nothing to the P/E ratio or the market cap so why even talk about it?

My response to such reasoning is that Wall Street is more concerned with perception than one might suppose. There is a reason why stock splits have been in existence as long as stocks have traded on the exchange. The prevailing perception among average investors is that Apple at $350 is expensive. I'm not kidding, the initial reaction of all clients when they first discover Apple's current stock price is to remark how expensive it is.
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