According to Carl Icahn’s open letter to Apple CEO Tim Cook Apple is well undervalued. Mr. Icahn values the $130 stock at $240. WOW, sign me up! But how? Well, if Carl gets his way it will include continued stock buy backs.
Over the last two years, the amount of shares outstanding decreased 10% while the dividend was increased 20% over the same time. His big point is that Apple’s PE ratio is 10.9x while the S&P averages 17.4x. So is Apple undervalued, or the S&P overvalued?
I am a commodity guy, but I follow the equity market, but by no means am I the expert that Carl Icahn is. But I know that to put a $1.5 price tag on Apple or any company is a nutty large number. I personally have a hard time believing that over the long haul it is possible to maintain the momentum of any company that size. Look back through time, it is not just the Roman Empire that rose and fell. If you think back to the glory days of once great American companies they are the shell of the once untouchable giants they were. Names like General Motors, Kodak, General Electric, Standard Oil, Blackberry, Yahoo, AOL….the list goes on and on.
Does Apple have room to run? No question, yes! Will Apple be on top of the world forever? No question, no!
We live in a small and fickle world. What was once hot will someday be not. Apple has become the company it is by being “cool” and being an innovator. As Apple or any company gets to be the sheer size of Apple it is hard to be cool and stay when you are mainstream. Will new young buyers still want and think it is cool to have Apple when their parents and grandparents have all the Apple gear?
So to all shareholders of Apple out there be glad guys like Carl Icahn are pushing Apple because as shareholders you need to enjoy the ride because like all great empires it will someday be replaced battle clad warriors that show up to topple the throne.