[Apple] currently trades at 13 times 2016 earnings estimates. And if you go one more year out to 2017, the stock is actually trading for 12 times earnings. And both of these numbers are below the company’s five-year p/e average, and it’s also a huge discount to the overall market. In my opinion, this is too low, especially given the company’s strong operating margins of 30% and net profit margins of 23%.
Apple is, in my opinion, a cash-generating machine. They have over $231 billion of cash on the balance sheet, which enables them to reward shareholders through capital distributions. The dividend yield currently is 2.12%, but the payout ratio is only 21%. This means that the company can grow the dividend tremendously from here.
Apple has been a large purchaser of its stock. Given the hefty cash balances, I think that continues. The stock buyback program serves as a safety net for the stock in case there is any type of pullback in the overall market.
Greater Upside for Apple Inc. (NASDAQ:AAPL)
March 28, 2016