Apple Computer has unquestionably been one of the best momentum stocks over the past decade. It is +1,314% from December 31, 1999-November 25, 2011, while the S&P 500 is -21% over that same period of time. It has also been one of the holdings in the DWA Technical Leaders Index (PDP) since its inception of 3/1/2007 and it has outperformed the S&P 500 handily over that period of time (Apple is +317% vs. -17% for the S&P 500).
However, as pointed out by Bullish Cross, even with the strong performance of Apple’s stock, there has been massive P/E compression over the past couple of years.
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The stock is now trading at an extremely low 13.1 trailing P/E ratio. We’re talking about a valuation level that Apple hasn’t seen in nearly a decade – this despite the fact that the company grew its earnings 82% this year which is the highest in over 7 years. We’re talking about a valuation that is more than 10% lower than the lowest point during the financial crisis.
Seemingly, Apple is an increasingly undervalued stock as investors have been slow to fully price in the exceptionally strong fundamentals. Clearly, just because a stock has a sustained period of outperformance does not mean that it is necessarily becoming overvalued on a fundamental basis.
See www.powershares.com for more information about PDP. Past performance is no guarantee of future returns. A list of all holdings for the trailing 12 months is available upon request.
HT: Abnormal Returns