Apple Inc. (AAPL) Isn’t Dead, Is It?

Apple Inc. (NASDAQ:AAPL) found itself drowning in a sea of negative speculation due to a slowing growth rate and increased competition.  I’m not saying that such concerns are invalid ones, but a 77% drop for a company that has historically proven itself as a leading innovator and competition crusher?  A decline that significant for a company such as Apple simply reeked of an undervaluing due to investor overreaction.

This is one of the reasons wise investors rarely, if ever, invest with a short time frame in mind, selling off like mad men the minute prices start to fall.  Investments are meant to be long term, and therefore able to ride the ebb and flow of the whimsical marketplace. And this is why Apple Inc. (NASDAQ:AAPL)’s second quarter rally doesn’t shock me.  The naysayers of late never really had a solid limb to stand on.  Those wise investors that held their stock (and the truly wise ones that instead of selling when the price fell just bought more shares) are now laughing at all the speculative fools that opted out.  Why are they laughing, you ask?  Well in case the thrilling news of an expanded stock buyback and dividend increase wasn’t enough to make them laugh, here’s another reason.

Apple never really faltered
The overwhelming decrease in price that haunted Apple Inc. (NASDAQ:AAPL) for seven months was nothing more than an unwarranted and unnecessary panic.  I know you can’t predict the future based on the past, but you can’t ignore it either.  The world’s most sophisticated stock valuation models rely in some degree on past performance to forecast future growth and cash flow.  Therefore, in order to validate my argument, let’s take a look at Apple Inc. (NASDAQ:AAPL)’s impressive credentials in comparison to some of its closest competitors, Google Inc (NASDAQ:GOOG), Hewlett-Packard Company (NYSE:HPQ), and Research In Motion Ltd (NASDAQ:BBRY).

One brief look at the chart and it’s obvious that Apple Inc. (NASDAQ:AAPL) has consistently proven itself a dominant force against its competitors.  Its 43.66% 5 year average revenue growth rate is a game changer in and of itself.  That’s nearly double the revenue growth achieved by Google Inc (NASDAQ:GOOG), while it can hardly be mentioned in the same sentence with Hewlett-Packard and RIM.  Truly, the only ratio whereby any of the competitors above really beat Apple is the 5 year average gross margin. Google pulls down an impressive 67.80% here, but again gets crushed by Apple in the way of its ROE.  Hewlett-Packard Company (NYSE:HPQ) and RIM are priced incredibly cheap in terms of their free cash flow generation, but this is to be expected when considering the lower revenue growth and negative ROE.  Apple and Google’s pricing (both P/E and P/FCF) are baffling, though.  Despite significantly lower revenue growth and ROE, Google Inc (NASDAQ:GOOG) is priced over 2 times higher than Apple in terms of earnings and over 10 times higher in terms of free cash flow.

I understand that investor concerns have been largely driven by a decreasing growth rate, but 43.66% growth, even if it’s decreasing (at least in the short term), is still staggering.  Not to mention the fact that Apple is known for being one of the most innovative and revolutionary technology companies of our generation, so I doubt very much the declining growth rate will remain a concern.  As for the other concerns that Apple is facing increased competition, well, numbers don’t lie.  Not only do the numbers presented above prove Apple’s domination against competition, but Apple’s second quarter iPhone and iPad sales saw no slowing and easily beat analyst expectations.  Tim Cook also alluded to new, upcoming product introductions in Apple’s future, which if they’re anything like prior introductions, we’re in for a pleasant surprise.

In my opinion, not only is Apple Inc. (NASDAQ:AAPL) here to stay, but it’s here to continue doing what it does best – revolutionizing the technology industry and making our lives that much better in the process.  And with that, I believe Apple will continue to provide great value to its shareholders for what is quite frankly an incredibly cheap price.