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Comment by Osmium | Hacker News Reader

Thanks for the correction -- but doesn't this still mean that, if Apple completely plateaus and they have no more growth whatsoever, Apple would still reach its current market cap ($430b) in cash within about 6 years?

And this is presumably an overestimate because its current stock price probably has further growth priced into it, so either Apple will reach that target sooner as a result of an increase in profits or, if profits remain the same, their market cap will fall further? I'm just not sure I understand the implications of a company acquiring so much cash that it matches its own market cap.

I ask because, this fact alone, seems to suggest to me that they're very much undervalued right now. But I'm not sure if I'm missing something.

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A price/earnings ratio of 10 is fairly common for blue chip stocks. It certainly isn't priced for growth, so presumably investors think that Apple's earnings have a risk of plateauing. Given how high Apple's earnings are, there's certainly an argument to be made that they can't go much higher without another big hit.

Keep in mind that earnings != cash. If you look at their full SEC filing, their net increase in cash was $5.4 billion. Some of that money will be directed towards future R+D, some toward a dividend, and some will stay in the bank or used for acquisitions.

Companies with a healthy balance sheet and a lot of cash, like Apple, will either pay a dividend or buyback shares long before the book value of the company (cash + other assets - debt) is greater than their market cap. The market cap is more likely to be close to the book value for a struggling company, in which case the company is at risk for a private buyout + liquidation.

Why do you think the stock will stay level? Investors take cash on hand into account. Also, Apple is distributing some cash as dividends.

Stocks seldom trade under the book value of the company, but it sometimes happens. The business may be bad and the stock is just anticipating, or the book value may be hard to realize in cash (hard to cash in on goodwill)[1]. None of that applies in Apple's case.

[1] And very occasionally there is something that is just that much undervalued.

> I ask because, this fact alone, seems to suggest to me that they're very much undervalued right now. But I'm not sure if I'm missing something.

But you're forgetting one other possibility and that is there income starts to trend downwards due to falling sales and falling market share.

Under that scenario they would eventually start to loose money and start burning into their cash pile.

Emotions play a big factor in the movements of share price and at the moment there is a fear Apple will continue to lose market share to players like Samsung and Google.

Will that happen? Only time will tell.

But don't think it can't happen. You need to look no further than companies like Research in Motion, Sony or Nokia to find companies that had massive market share only to see it eaten away by competition.

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