Fortune has a short post by @philiped today that calculates Apple’s PEG ratio (price / earnings / earnings growth, a favorite measure of Peter Lynch) to be below 1.0, and far below companies such as Dell, Amazon, and Cisco, implying that it’s undervalued (same for Google and IBM).
In other words, Apple’s profit growth is explosive, but as I write this, its P/E is still in the mid-teens (currently 15.0). Google’s is 18.8. The S&P 500 overall is 22.6. Amazon’s is 81.3.
This means either the market is expecting Apple’s growth to slow dramatically, or it believes Apple’s future earnings to be highly risky – or both. Whatever the case, Apple’s stock is down 10% in the past four months.
This is absurd. Would anyone in his right mind actually bet against Apple’s earnings growth right now, given the sales it’s posting for iPads, iPhones, and iMacs? If this is a Steve Jobs story, it’s hugely overblown.
Prediction: Apple will continue to outperform the S&P and tech peers like Amazon over the next 6, 12, and 24 months. I’m putting reminders to check back into my calendar.