If Cash Is King Buy Apple

There’s no denying that Apple is one of the best corporate success stories in the history of capitalism. The company emerged from bankruptcy to become world’s largest company by market capital for nearly a year until recently. Apple invents new products, improves the ones that they have, and is a world leader of new cutting edge technologies. Apple is more like three separate companies working in harmony: Hardware manufacturing, software engineering and retail. The company’s hardware, software, and retail experience interests its consumers in various ways, but they work around the same basic ideas of meeting the consumers’ needs before they can begin to anticipate them. Apple creates products for business, home, and entertainment, in home and transportable, for all age groups, at prices high enough to make their products aspirational, but just reasonable enough that they are still attainable. Apple prides itself as being a brand that is the standard for quality, usability, and design aesthetics. Apple products are created to sell the brand and create a lifetime of loyalty to the brand in the home and beyond. The price of the company’s stock has dropped by 40% since the fall creating a great opportunity for new investors to purchase the stock at a very low price (Sherr). Apple is a ‘buy’ at its undervalued low price due to potential for future growth cause by the company’s excess of cash, plans to return capital to shareholders, and innovative product line.

Cash is king and with the $145 billion on Apples balance sheet, they definitely take the throne. Apple generated more than $40 billion last fiscal year alone and the company has no debt (Yarrow, Blodget). Peter Oppenheimer, Apple’s CFO recently reported, “We continue to generate cash in excess of our needs to operate the business, invest in our future, and maintain flexibility to take advantage of strategic opportunities.”(Apple-Press Info) Even with declining margins some analysts estimate Apple will have $200 billion in less than five years. Apple can use the cash to promote long term strategy such as buying other companies including competitors and startups. Apple today has enough money to buy companies like Netflix or Comcast. Visions like these can get current investors excited as well as attract new investors (Travlos).

Analysts believe that Apple is severely undervalued. Wall Street has valued Apple’s entire business at $240 billion. At Apples current rate of cash generation, it would only take the company six years to earn the cash amount equivalent to Wall Street’s value. Wall Street’s evaluation predicts that Apple will not earn anywhere close to its $40 billion dollars last year and that its cash generation will collapse moving forward. At current prices net of cash, the company is less than six times forecast cash flow per share (Arends). Apple stock is trading at 6.4 times expected 2013 earnings making it one of the