"Why is Apple stock so cheap?"


Executive summary: Apple P/E is understated due to a change in accounting rules for which Apple lobbied in 2009. The change allows Apple to book unearned revenue from “sales of bundled products such as iPhones – which include hardware, software, services and upgrade rights”.



Wow. So E is big because not all E is really in yet?

Very interesting, I had an interview recently and was asked this exact question. This is not the answer I gave and I didn’t get the job. No idea if there’s a correlation. Is this some hot topic I’m unaware of or is this just some crazy coincidence?

I guess it’s not a new issue, since the rule was implemented in 2009. However, many people, including myself, do not follow AAPL closely and only became aware of this after this research began circulating in popular news sources. Most likely, the person who interviewed you also read one of these articles.

there is no correct answer here. but if someone at an interview asked me about this, i would say their earnings 10 years ahead are uncertain…ppl are also aware of not paying a high multiple for a product company that can vanish much like RIM…now, did i get the job?

You guys should read the comments. Zerohedge doesn’t ever say anything positive, that is their shtick. I agree that their earnings are better matched to cash flow now, and their growth in earnings POST change is still astronomical. The only reason the valuation (read:multiple) is low is due to concern about the growth rate slipping as the company enters maturity or consumers preferences somehow do a 180. I don’t think it’s unreasonable to argue this company is worth 1 trillion TBH.

Actually, ZH has always been pretty nice to Apple. There’s no denying Apple’s making products people want, and they’re selling a ton of them.

ZH really only bags on financials and companies with borderline fraudulent accounting (GM). I’ve never seen them write anything really negative about Apple as a company. They do make an interesting point that if/when people are forced to start paying their mortgages again, toys like iPads are going to take a huge hit. In other words, if Obama does something to allow people to start making payments towards their mortgages again, there will be an estimated $50 billion getting sucked out of consumer spending. Interesting theory.

AAPL: Up another 2.6% today, as of now. I’m up nearly a lot since my most recent purchase in January. I mean I’m bullish on Apple but this first quarter is just crazy, am I right? Set for a ST correction soon?

Interesting perspective:


I’ve been an apple fan boy since the original imac. It was the first stock I ever bought at 8 dollars a share. Unfortunately, I only bought 200 dollars worth of it at the time. (I was 15) I also worked for Apple in college repping them on campus.

In any case I see a lot of worrying issues for Apple in the long run. And I do mean long run. I am still a shareholder.

  1. Who needs an ipad, iphone, or a pc in the icloud world? Apple get’s that we are in the post PC era, but will I really need an ipad in the post portable device era? Will Apple win in this era the way they win now? Not certain. Apple has a lock on portable devices but I think 10 years out the device won’t even matter much. I don’t need a better ipad just like I didn’t need a better PC starting 10 years ago. My macbook is now 5 years old and I will not replace it until it breaks. When it does break I am uncertain that I will replace it with a mac. If I do it will be with the lowest end computer that apple sells. The same goes for the new ipad. I have an iPad 2 but could easily afford a new iPad3, but actually it doesn’t really do anything that the iPad2 doesn’t do or that a million other devices don’t do. Prettier screen? Hmm. Not a game changer for me. My ambition with an ipad like most people is to surf the net, write emails, read books, and communicate. iPad2 does that just as good.

  2. Ok, so lets say Apple wins the whole Cloud thing. But so what? Does apple make a lot of money off of the icloud stuff? I wonder if it ever will. The big revenue driver are the devices. People hate paying for services. Every single “service” thing apple has ever tried has been a dud. Nobody was willing to pay 100 bucks a year for .Mac. But they will spend a lot on devices. I see Apples move to the Cloud as defensive, because it is inevitable, but not as something that will necessarily increase their revenue above and beyond where it already is now. The CEO of vodafone was talking about 3g once to me and said, “Yeah, we do 3g to stay competitive. It doesn’t improve out profit margins.” Well, in this case i think the cloud will actually erase apples profit margins. I can already log onto google from just about any computer in the world and 1) check my mail 2) surf the net 3) edit documents 4) chat with friends etc. So really I dont need apple for anything except the device. But there are plenty of good iPad clones out there that do more and are better than apple in plenty of ways.

  3. iPad and iPhone are the same product. This is obvious and has been for some time but one is the same just bigger. In fact I’ve even jailbroken my ipad so that it can make phone calls and sms and I literally stopped using my phone all together.

  4. A new brand. My cleaning lady (I live in India so she is poor) now has an iphone. Apple products have reached Blackberry status approximately 5 years ago. Everybody has gotten one, or is getting one. This is the usually the death knell for a brand. Eventually someone is gonna create a new brand that will have that exclusivity thing that rich people want.

  5. Big numbers. 580$/share. Say no more.

  6. Apple is not fully embedded in enterprise the way that people like Microsoft are. Microsoft has sucked for years but is not gonna go anywhere anytime soon. While a lot of people are very loyal to Apple, myself eincluded, Enterprise has no real commitment to apple products. As soon as the iPhone or Ipad gets noticeably beaten I predict a sharp fall in revenue as we all know retail consumers are just gonna chase the next fad. All those IT people will still be using Microsoft when that happens.

  7. Motorola Razr


I’m not an Apple fanboy, but I don’t see these as particularly compelling arguements to worry about the stock.

  1. This is the only thing that’s really a question mark. Can Apple continue to kick so much ass? In a post-Steve Jobs world, no one knows. But, until another company comes along with something amazinly innovative, Apple will control the retail space.

  2. iCloud isn’t about making money directly. It’s about making multiple Apple devices that much easier to use. I actually don’t use it, even though I have an iPhone and an iPad, but from what I hear it’s a good services for those that have a ton of music, videos, pictures, etc.

  3. No, they’re not. If you’re carrying around your iPad as a phone, you’re in the minority. Never going to happen.

  4. Andriod crushes the global market…about 60% global market share. Apple is still gaining, but definitely not over saturated.

  5. 12.5 forward PE.

  6. Kind of the same as your first point. It’s a threat, but who’s going to step up? RIMM, MSFT…no. Google? Maybe, but they’re not exactly lighting the world on fire at the moment.

  7. Very funny.

I don’t own any AAPL, but I don’t bet against them either. Even during deep recessions people spent money on their products, so I’m not too worried about the well drying up anytime soon. It’ll take a new competitor with a truly innovative product. Or, Apple just totally screwing up the next few generations of products…iTV being a flop would hurt.

appl won’t be hot forever…i guarantee it…there will be a time to short or buy puts…now isn’t it though…

What kind of earnings miss would it take for apples stock to plunge? To get the HF guys to jump ship.

I’m thinking eventually they will basically come out with a report that shows that everybody who has ever bought an ipad and iphone already has and based on the newer updates they are reluctant to buy the latest model at this time.

I also wonder how far down this drags the Nasdaq with it.

I iniated a position on a may 19th put with a strike of 600 last Tuesday. So far some lucky timing. I did this because I’m expecting earnings to disappoint on the 24th.

Still plan on being long in this stock In advance of iPanel. But since I think the iPad 3 is likely not a huge success and their phone sales, which are the bigger driver, will be low in advance of a new phone this summer, I’m betting that this thing corrects. Today might have been the correction, but I am expecting more.

Does anyone know when AAPL joined the S&P 500 listing? I can’t seem to find the date easily, and was hoping someone else here might just know it before I spend digging in S&P’s website to discover the first index change that has AAPL listed.

Did the fact that the S&P was down today and the Dow was up pique your interest?

No, although I was wondering about that too. I’m just wanting to do a small research project for a blog piece (might be my blog, might be a client’s blog), and it’s a relevant data point.


ask that guy Bchad…