Apple Inc. (AAPL)’s Value Proposition

If we step outside of the value stock spectrum and compare Apple to another major competitor, Google Inc (NASDAQ:GOOG), Apple still offers an attractive investment opportunity.  Google continues to perform as a growth stock and chooses to invest its cash in acquisitions rather than return it to stockholders.  Google trades at a P/E ratio of 26 compared to Apple’s ratio of 11.

That said, comparing the companies based solely on P/E ratios would be wrong if we accept Apple Inc. (NASDAQ:AAPL) as a value stock and Google Inc (NASDAQ:GOOG) as a growth stock.  In order to better evaluate the stocks we will look at the projected 5 year PEG ratios.  The PEG ratio compares a company’s P/E ratio to its expected EPS growth, and will help compare stocks with different growth rates.  A ratio under 1 suggests the stock is “cheap” relative to its growth rate, and a ratio over 1 suggests the stock is expensive.  Apple currently sports a PEG ratio of .53, while Google has a ratio of 1.74.  Accounting for growth, we can see that Apple offers a much more appealing value relative to Google.

Apple Inc. (NASDAQ:AAPL) currently represents a strong investment opportunity relative to its major competitors.  As a value opportunity, Apple clearly looks more attractive than Microsoft Corporation (NASDAQ:MSFT).  Apple also appears to be a great opportunity when compared with competitors still operating  as a growth stock.

The article Apple’s Drop – The Perils of Capital Structure originally appeared on Fool.com and is written by John Timmes.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.