As I type this, Apple is selling for about $532 a share. That's cheap by several measures.
The ratio of price to earnings is only 12:1 Stock market average (S&P500) is about 15:1 Apple is cheap even if it never grew its overall earnings at all. Current revenues are high enough to justify a higher share price.
But Apple is still growing, even if it can't grow as quickly in the future as it did in the past. While Apple is unlikely to grow earnings at the astounding rates it did in FY2009-FY2011 (69%, 67%, and 83% respectively) it is still growing a great deal. The recent quarter still had earnings up 23% relative to last year's same quarter.
And there's reason to believe there's more to come. IPad mini sales are increasing now that supplies have finally started to keep up with demand. The rumored launch of an Apple Television product is not priced into the stock.
Older Apple products are still penetrating emerging markets. You may not have much of a use for an old iPod or an iPhone 3GS, but as a prepaid phone option in emerging markets, the 3GS isn't done yet.
If Apple has any weakness as an investment, its that it has become of victim of its own success. The huge amounts of cash that are coming in are reducing its profitability.
Allow me to explain. Apple took in $156B in revenue in the last 12 months. It spent $88 billion to generate those revenues. When you pull out all the deductions for research, administration, depreciation, amortization, and such you leave Apple with a net income of $41.7 billion.
But Apple has over $121billion in "cash, cash equivalents, and marketable securities." These investments are very low rate of return-- usually less than 3%.
Compare this with the overall profitability of Apples and see that Apple only has to spend $0.56 to make a dollar. This is a 44% return (gross margin).
See the problem? As Apple takes in more and more cash, the percentage of its revenue that comes from selling things will shrink as the fraction that comes from short-term invested cash grows.
What this means is that Apple will appear to have margins get worse just because it's making so much money. It has more cash than its current operations can use. Far more. Apple spent less than $10 billion on all administrative costs, R&D, marketing, etc. Thus, it's "operating margin" at 35.3% is not far below its gross profit margin. Moreover, that operating margin is higher now than ever before. Apple is becoming MORE profitable in a marginal sense, not just in terms of growth. Itss profitability is scaling up faster than its basic revenues are.
With so many analyst making a lot of hay about how Android has come to "dominate the market," Apple shares are cheaper than they should be.
Which leads me to a follow-up post I owe you on how to pick investments.