Saturday, November 3, 2012

Apple: Follow The Road Paved With Gold

On Friday, November 2, 2012, Apple closed down on the day 3.31% at $576.80. This was the lowest closing price for the shares since July 27, 2012 and the shares ended the day and the trading week off more than 18% from the all-time high of $705.07 set on September 21, 2012.

For long-term investors, Friday's closing price represents an excellent entry opportunity to realize very strong share price gains in the months ahead while capturing a more than 1.8% annual dividend yield. Apple is currently trading with more than 22% of the share price backed by cash and a price-earnings multiple at the low-end of a nearly three-year trend. 

Apple: Follow The Road Paved With Gold
The graph below illustrates at Friday's closing price the company's cash and marketable securities per share represented 22.17% of the share price. Meanwhile, the company's price-earnings multiple has fallen to just over 13x trailing 12-month earnings. This is despite 59.5% earnings per share growth in the fiscal year ended September 29, 2012. The high cash per share and very low price-earnings multiple is occurring at the beginning of a six-month period that will deliver record revenue and earnings for the company.
Using the first trading day of the month following the release of quarterly earnings since February 1, 2010, Apple's cash per share has continued to rise while the company's price-earnings multiple has continued in a steady decline. From a price-earnings multiple of 20.08 times trailing 12-month earnings on November 1, 2010 to a multiple of 13.06 times trailing twelve-month earnings on November 2, 2012, Apple's multiple has fallen about 35% while cash per share has risen about 133% percent.

Since February 1, 2010, Apple's trailing 12-month earnings per share has risen over 331% while the share price has advanced by only 196% over this thirty-three month period. Not only will Apple's share price retrace to new highs over the next six months, investors will be rewarded with a quarterly dividend of $2.65 per share and the prospect of significant additional appreciation while the shares maintain a conservative earnings multiple.