Should Apple Be This Cheap?
Source: GuruFocus
http://www.thetradingreport.com/2016/05 ... his-cheap/
Apple’s service business profit margins grew by 60% in 2015, and is growing even faster now as management continues to leverage its user base of – say it with me – more than 1 billion Apple devices.
Services don’t cost a lot to acquire, nor do they cost a lot to provide, which means, of course, that more money comes to the bottom line.
At current prices, AAPL trades for just 10 times earnings (both trailing and forward). That’s less than half the valuation of the S&P 500 Index. Most recent estimates put the P/E ratio of the S&P 500 at 24.
If you strip out Apple’s cash hoard, you get a P/E ratio in the mid-single digits. That is ridiculous. There’s just no other word for it.
I’m not particularly bullish on U.S. stocks at current prices, however. I’m expecting very modest returns over the next five to 10 years based on today’s valuations.
But to the extent you own stocks at all, Apple is one that warrants a place in your portfolio.
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