Audrey Deschenes
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Apple’s stock is now even more of a bargain after its recent slide

We’ve seen panic patterns for Apple before, but the fundamental case for the stock is sound

Bloomberg News/Landov

Apple’s stock looks like a winner, but only for long-term investors.

Are you a day trader? If so, this report may not be of any use. But the recent decline in Apple’s share price is just making its stock an even more compelling long-term investment.

Way back on July 22, following Apple Inc.’s AAPL, +0.34% announcement of a very strong third quarter, I said long-term investors were looking at a “golden opportunity” to buy the stock. The share price was down 4% that day, and has fallen 13% since.

So did I make a bad call? According to some readers, the answer is “yes.” Then again, the call was made based on Apple’s continued stellar sales growth, the stock’s low relative valuation and the decline in the share count. It wasn’t meant to be a short-term trade.

Here are just a few amazing numbers from the fiscal third quarter:

  • Quarterly sales grew by 33% from a year earlier.
  • Earnings grew by 38%.
  • Earnings per share grew by 45%, because stock buybacks caused the diluted share count to decline by 5% from a year earlier.
  • Sales in China grew by grew by 112% to $13 billion.

The concerns that have sent the stock down include the possibility of a slowing growth rate in China as the economy slows and Apple faces heavy competition from local manufacturers, including Xiaomi and Huawei Technology Co. Ltd.002502, +9.93% There was also the company’s fiscal fourth-quarter sales guidance of $49 billion to $51 billion, which was below the consensus estimate at the time.

A lack of detail about Apple Watch sales added to the pressure.

The reaction has been sharp with headlines screaming about how much market value the world’s largest company (by market capitalization) has lost, and even arguing that a further decline of Apple’s stock could push down the entire U.S. stock market.

Brett Arends made a strong case that the backlash against Apple has gotten plain silly, and dug into the numbers to show just how cheap the company’s shares are.

Apple’s stock closed at $115.40 Wednesday and was trading for 12.7 times the consensus fiscal 2015 EPS estimate of $9.20, among analysts polled by FactSet. That compares to a price-to-earnings ratio of 17.7 times for the S&P 500SPX, -0.29% which is expected by S&P Capital IQ to show 7.9% EPS growth for the most recent quarter (excluding the Energy sector). That pales in comparison to Apple’s 45% EPS increase.

Let’s punch a few holes in arguments against Apple:

The company is so big, its growth can only slow from here.


http://www.marketwatch.com/story/apples-stock-is-now-even-mo...