Carl Icahn, the billionaire fund manager who occasionally appears on CNBC segments, announced a large stake in Apple (AAPL) via Twitter earlier this month.
Mr. Icahn cited valuation as the opportunity with his investment in Apple. On August 13th 2013, the day of the tweet, Apple shares opened at $470.94, and closed at $489.57. The Price-to-Earnings (P/E) ratio increased from 11.74 to 12.21. At the time of writing, shares of Apple closed at $502.36 with a P/E ratio of 12.52. Financial data throughout the article, except the chart below, is from 8/21/2013.
Dr. Icahn, How Is Apple Undervalued?
Typically when you call a company undervalued, comparable companies will trade at premium relative to the issue you are considering. Metrics like Price to Earnings, Price to Book, and Earnings per Share are compared alongside other common financial metrics.
|Share Price (8/29/13 close)||$491.70||$13.75||$10.13||$855.43||$33.55||$4.00|
|Trailing Twelve Month Stats||AAPL||DELL||BBRY||GOOG||MSFT||NOK|
|Price to Earnings (P/E)||12.x||17.x||N/A||24.x||12.x||N/A|
|Earnings per Share (EPS)||$40.11||$0.25||($0.41)||$34.57||$2.58||($0.44)|
|Price to Book (P/B)||3.62||2.24||0.58||3.61||3.54||1.54|
|Price to Sales (P/S)||2.6x||0.4x||0.4x||5.1x||3.5x||0.43|
Finding the perfect competitor to compare Apple against is a challenge these days. Blackberry (BBRY), once a leader in smartphones, announced on August 12th, they are exploring strategic alternatives. In other words, the company is up for sale, and is no longer a good comparison.