Apple Inc. (NASDAQ:AAPL) is one of the world’s most noted companies, creating market leading products, supported by a legion of devotees, and possessing a robust array of assets. Nevertheless, its stock prices are consistently undervalued according to many analysts. Though some assessments are possibly self-serving rather than scientific – as, for example, in the case of activist investor Carl Icahn – many are from sober, highly regarded analysis firms such as Pacific Crest, which asserted Tuesday that the stocks are undervalued by $100 or more, and that the true value of the stock is closer to $635 per share.
A year ago, analysts were also saying that the stock was undervalued. At that time, target prices of $615 were deemed appropriate, about $20 less than the price thought to match Apple’s prospects more accurately than the market price today. Nevertheless, the Cupertino, California enterprise’s share prices remained stubbornly below that level in April 2013, just as they are remaining immovably far below their “true” worth in mid-March of 2014.
Apple is currently in powerfully robust good health as a company, and is well positioned to improve its fortunes even more in the near future. The release of the iPhone 6 is likely to kick revenue up a level, particularly if it is the first Apple (AAPL) smartphone to break the 4 inch barrier of screen size. Other projects such as the iWatch, a new incarnation of the Apple TV, and perhaps a mystery product or two, if they materialize this year, could raise profits even higher.
The answer to the question of why Apple Inc. (AAPL) shares remain steadily below their actual value may lie in the psychology of traders, rather than in objective facts about the company. Many, if not most, traders have a gambler’s mentality, and Apple may simply lack the drama and flashiness needed to appeal to them at a visceral level.
For example, the company pursues actual profit rather than the splashy but ultimately superficial market share that its rivals aim for. As reported here on PF Hub, the firm captured 87.4 percent of global smartphone profits in 2013 despite being far outdone in volume by competitors.
Apple also prefers to let its products speak for themselves, spending only about a quarter as much as Samsung on annual advertising. Even more damning, perhaps, is the fact that it is content to rake in massive profits annually rather than making those profit figures grow exponentially (even if said “growth” came, as it often does, from reckless borrowing to bolster the credit side of the balance sheet).
As just one instance, Apple’s Q1 2014 profits were $57.6 billion, the company’s highest revenue for any quarter in its history – yet share prices dropped 7% within hours, because investors were, basically, disappointed that the record-setting profits weren’t even more massive than they already were.
Many investors are not content to see growing, robust profits from a company – each year must set a new record, or they lose interest. The reason that Apple’s (AAPL) shares are undervalued is that many investors are the equivalent of “adrenaline junkies,” and prefer firms with splashy but unsustainable market share figures, dramatic advertising campaigns, and so on. Apple is a rational juggernaut of steady profits and simply does not offer the excitement these traders crave, even if it is, in objective terms, a superior investment to many of its competitors.
