For Apple, There's No Such Thing as Expensive

NEW YORK (TheStreet) -- It always amazes me to see that whenever tech giant Apple (AAPL) comes up, analysts go out of their way to "one-up" each other in describing the company. It is as if there are yet things that can be said about the company's success that has not already been said. That in and of itself demonstrates just how popular the company is -- and how through its words or image Apple systematically does things that makes one question his or her own ability to rationalize.

The company has become not only the anchor of the stock market, but the beacon of innovation for the world. (How's that for my own "one-upping" attempt?) That it has surpassed Exxon Mobil ( XOM) as the world's largest company -- to the extent that it is now larger than Microsoft ( MSFT), Cisco ( CSCO) and Intel ( INTC) combined -- leads to the other popular component of any discussion that involves Apple: Its valuation. This is something many investors still do not fully understand. It seems the biggest source of disconnect, continuing due to a lack of appreciation between the difference of price and value.
Despite operating in a cut-throat industry, there are no meaningful signs Apple is slowing down.

While many are quick to proclaim how expensive the equity is merely by looking at its stock price, I look at that valuation and see an equity trading at a considerable discount relative to its earnings potential. The stock is trading at a forward price-to-earnings ratio of only 10. That is in line with other technology companies, including its rivals in Google ( GOOG) and Microsoft. That is considerably discounted to the forward P/E of 85 that Amazon ( AMZN) enjoys, though, and much lower than the 62 a company such as Salesforce.com ( CRM) carries.

Here's some perspective: In Apple's second-quarter results, the company continued to demonstrate just how dominant it is by earning $11.6 billion, or $12.30 per share, for the quarter -- almost matching what it earned for the entire fiscal 2010 calendar. So why is the market expecting more from Salesforce than from a company that has dominated the sector over the past five years, to the point where it is now on the verge of putting former market leader Research in Motion ( RIMM) out of business? If that is not an indictment on the lack of intelligence that roams Wall Street I don't know what is.

Furthermore, not only did revenue surge 59% during the quarter; Apple shipped 35.1 million iPhones and 11.8 million iPads. I was pretty astonished by the fact that Apple was able to log 88% unit growth above the same quarter last year while also selling 151% more iPads.

Amazingly, there were skeptics ready to pull the curtain on its magic act and demanding proof it can still produce the growth Wall Street expects. These results suggest several things, not least is that as dominant as Apple has been over the years, it is just now on the cusp of a huge achievement: It has a product in the iPhone that has gained not only a strong and steady demand around the globe, but continues to grow at a remarkable rate.

If there is such a thing as a must-have stock on the market today it is Apple. It is one of only a handful of companies that consistently puts out must-have products. Why would anyone not want to own the stock -- one I have come to realize is the cheapest on the market, and for a company sitting on $100 billion in cash?

Bottom line
Despite the fact that the company operates in a cut-throat industry where everyone including Samsung is trying to take away its business, there are no meaningful signs the company is slowing down. This is even despite having even the most overly optimistic earnings estimates on Wall Street. Without question, the company's growth rate has been nothing short of phenomenal. The question is, where is it heading? There is no doubt its next target is $1,000 per share -- something I expect within the next 24 to 36 months. So when discussing its valuation today, investors have to realize there is no such thing as expensive.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author was long AAPL, MSFT, CSCO and held no positions in any of the stocks mentioned, although positions may change at any time.

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