From the end of the second fiscal quarter of the year 2017, and especially in the early weeks of the month of September, many people were asking themselves the question posed in the title of this article. The reason why the question became so prevalent at this time was that of events of an unprecedented nature. A company, with worldwide scope and enjoying a dominating share of its market, was discovered to be surprisingly undervalued and under-owned, for a reason which could only be speculated upon. Despite this, the company in question was moving from success to success, growing in size and acquiring a veritable cash hoard in the process. Many observers commented on this and you might like to ponder the implications if you are wondering about whether now is the time to buy Apple shares. The giant company had enjoyed growth of 33% in its shares to give them a value of US$ 800 billion, but as was noted in a Bespoke Investment Group analysis, this still made Apple a company that was not valued to the degree common across the stock market as a whole, let alone the tech sector of the S&P 500. If the price to earnings ratio of the entire stock market was applied to Apple shares then they would, at that time, have traded at US$184; if the ratio common to the tech sector had been applied, then this figure would have risen to US$211. In fact, at the time, Apple shares were trading at US$154.
So, in effect, we have answered part of our original question. If you are interested in investing in Apple shares then you will find, at least for the moment, that they are available at a price that is less than what logic and common practice would suggest is appropriate. However, you might be wondering if this under-pricing does not have a wider significance. Could it be a sign of underlying problems with Apple shares as a whole? Might there be a reason why the markets under-valued these shares and why investors also under-own them? If you have been wondering this, then your concerns might be reassured by an exploration of the explanations offered by observers of the company, which suggests an explanation for the phenomenon that is rare. It is possible that the markets simply do not know how to value a company like Apple, with its continuing range of successful products, its strong earnings growth and also the very considerable, up to US$ 256 billion by the end of the second quarter of 2017. Quite simply nothing quite like Apple has been seen before. The dividend issued to shareholders from 2012 marked the company out as distinct from other growth stocks. With the company’s earnings set to increase by an estimated 15% in the next twelve months and with no sign of a repatriation tax break to liberate the cash assets which Apple has piled up from its foreign sales, there seems to be no end in sight to this unusual situation.
(Simon Topliss, Research)
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