Is Apple Inc. Stock Criminally Undervalued Compared to Google Inc?

iphone 8 apple stockElisaRiva / Pixabay

Two of the biggest names in the world of business today, not merely technology, are Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). Both have established themselves among the most significant corporations on the planet, with Google absolutely central to the contemporary Internet, and Apple the dominant and most revered producer of consumer electronics in the world.

Apple – the ultimate brand

Apple is currently rated as the most valuable brand in the world by Forbes, and the world’s 15th largest corporation, while Google is the fifth most valuable brand and within the top seventy most valuable corporations on the planet. This would obviously imply that Apple is the more valuable company of the two, and its most recent sales figures indicated that the company has shifted record numbers of its most important product lines – the iPhone and iPad. So why has Google’s stock so notably outperformed Apple in the last year or so?

Both Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG)’s share price and stock is slavishly followed by investors and market analysts all over the world. Millions have observed Google’s stock price rise during this period, with the computing firm having celebrated a 75 percent increase in value over the last fourteen months.

google

By contrast, the stock of the world’s biggest brand has been pretty stable over the same period, and even declined somewhat on the back of investor skepticism that the consumer electronics manufacturer can successfully expand its product range.

apple

Thus far, Google has managed to acquire an enterprise value which is $22 billion in excess of that of Apple. This is somewhat mystifying considering Apple’s net income is nearly three times that of Google Inc (NASDAQ:GOOG), with the former raking in over $37 billion in revenue per year compared to Google’s annual income of just under $13 billion. And famously Apple Inc. (NASDAQ:AAPL) has well over $100 billion of ready cash available to invest at any time, reckoned to be approximately four times the cash flow that Google has available.

Icahn recommends vast buyback

Is Apple Inc. Stock Criminally Undervalued Compared to Google Inc?

Based on these figures, it is perhaps not surprising that many market analysts consider Apple to be seriously undervalued in comparison to Google. One such Apple bull is the billionaire activist investor Carl Icahn who owns over $3 billion of Apple stock, having recently invested another $500 million in the company. Icahn is perpetually using his influence and clout at the company to push Apple to commit to a $50 billion buyback; not something that has been rubber stamped yet, but clearly a strategy which Icahn believes to be foolproof.

Just last month Icahn wrote a letter to Apple shareholders – presumably in an attempt to instigate his recommended course of action – in which he listed a number of reasons why he believes Apple Inc. (NASDAQ:AAPL)’s stock is currently greatly undervalued. Apple is currently trading over 70 percent below the average price-to-earnings multiple of the S&P 500, and is expected to increase its annual revenue to over $40 billion this year.

While Apple’s hierarchy has acknowledged the importance of establishing new products in order to diversify, the company surely has great potential in the medium-term. If the iPhone 6 turns out to be as exciting as it currently looks then Apple’s share price may not be dormant for long.

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About the Author

Christopher Morris
Christopher Morris is a passionate player of video games since the days of Space Invaders, and is extensively published on the subjects of Business, Technology and Politics. Chris also contributes to Yahoo.

32 Comments on "Is Apple Inc. Stock Criminally Undervalued Compared to Google Inc?"

  1. You still have not laid out a good argument as to why AAPL stock is pumped up and overvalued when it was Wall Street that push the share price down from its high of $700+ to the level it is at now. AAPL’s current share price and P/E does not accurately reflect their sales and ESP that they hit quarter after quarter, especially when their cash-on-hand is factored in.

    Besides comparing to other companies in their respective sector, please explain how you give valuation to any given stock. Also, tell me if you think a P/E of 636 can be justified for Amazon and why their P/E is so high…..especially when their margins are so low and profit (relative to sales) non-existent.

    You give no consideration to all of the iTunes accounts with credit cards Apple has (more than any other company) and how the introduction of a payment system using their TouchID technology will change the way consumers pay for online purchases and how Apple can monetize that asset. There is also AppleTV ($1BB in sales last year for a “hobby” device) and possibly some other wearable device in the pipeline that will further drive growth. New products are coming from Apple and they are category creating/changing devices…..because that’s what Apple does. Apple, as history shows, will do it right and consumers will embrace the “new” way Apple’s tech will change/enhance their lives, just like the iPod, iPhone, iPad and MacBook Air. Apple has a lot to prove because everyone, especially Wall Street, have high expectations. Plus the fact that Apple seem to be held to a higher standard than their tech peers.

    I’m beginning to think you don’t know what you’re talking about because your pyramid analogy is completely off the mark. And, if you ask me, if there’s any stock that has been pumped up lately, it’s GOOG.

  2. Rich Steinberg | Mar 7, 2014, 5:53 pm at 5:53 pm |

    That’s great that you got in on the ground floor, you’ve seen a nice return so far. You embrace Google’s slanted search results because it helps boost Google’s ad clicks>revenue>stock price. But from a different point of view, Google’s search results are not going to be in the best interest of the user if the results are slanted towards their paid advertisers, which is a shame and doesn’t allow all e-commerce sites to compete on a level playing field.

    What if you were looking to find the best price on-line for purple widgets because you need a lot of them. So you type in “purple widgets” and you get a whole mess of results for companies that sell purple widgets. Most people are unaware that Google slants the results towards their paid advertisers so they think the results on the first page are probably the best, not knowing they probably cost more because those companies have additional overhead in the form of paying Google for their ad click-through. Later, you get told that if you went to page 2 or 3 of the purple widget search results you would’ve discovered quite a few companies that sell their widget for 10-15% less than the companies who’s results showed up on the first page. SInce I bought a lot of widgets, I would’ve saved lots of money if I knew what Google’s search results were based on and I would’ve went to page 2 or 3 right from the beginning. I know this and I use this practice but most people don’t.

    In the beginning, Google returned results based on the user’s search key-words. Now the results are more based on who pays Google more to put them at the top of the results. Therefore the search results they deliver are more in the best interest of Google rather than the user. Legal? Yes. Fair? Certainly not to the user. Unethical? That’s arguable. Google should change their mantra to “Do no Evil….but greed at the expense of the user’s unbiased/objective search results is ok”

  3. “.. been known to change their search algorithms to boost their paid advertisers higher in the search results.”

    Because of such possibilities, that is why I went all in on the Google IPO at $100.

  4. Rich Steinberg | Mar 7, 2014, 1:50 pm at 1:50 pm |

    How are their methods unethical? Google circumvented Apple’s Safari cookie disabler and were sued by the government because of it. They’ve been known to change their search algorithms to boost their paid advertisers higher in the search results.

    Explain why mentioning safety/security/privacy along with Apple is ironic.

    Not only does Google glass raise flags about privacy (being able to record video unbeknownst to the public) but it is also downright rude having a “computer” that can be on/available all of the time. It’s bad enough that people have their faces buried in their smartphone, which can be seen while it’s happening. Now I have to wonder if someone is paying half attention to me while they’re checking their emails or texts?

    Motorola didn’t have patents that were valued anywhere near what they lost on the purchase and sale so your augment is hollow at best. They lost money anyway you slice/spin it and they admitted to it during their earnings conference call.

    My argument is that Apple is a great deal at it’s current price and Google is not based on their current price. At the end of the year I bet the return on AAPL will be 2x GOOG. I picked up 4000 shares of AAPL 15 years ago when it was at a split-adjusted $4.25 per share so I don’t need to boost my interest in AAPL, I just believe that AAPL is currently undervalued, especially when you factor in their cash on hand. The author of this article seems to think so, too.

  5. Ofcourse they are an advertising company! They never hid it. But how are they or their products vaporware?

    Youtube is free. How is it free? Advertising.

    How are their methods unethical?

    Their products generate half the spam? wow! please, PLEASE cite some proof to that. Actually, PLEASE cite some proof to their products generating 5% of spam.

    Advertising elevation? Again, please cite your sources. Except for the 3 ads at the top/bottom of the page in orange and ads on the side, the regular results have nothing, zero, zilch to do with paid partners.

    It’s funny that you mention security/safety/privacy while promoting Apple at the same time. The irony is just overwhelming.
    The only privacy issue with Glass is having the video camera running all the time. Maybe it will come to market, maybe not. Either way, Google will be fine as will their stock.

    As for them making more money from iOS than Android devices (which, by the way, outnumber Apple 8 to one, not 3 to one), I don’t think that that’s the case, but wouldn’t surprise me in the least if they do make more per iOS device than per Android device, as Apple consumers have been trained to overpay for what they get by Apple, and are used to it.

    I know Google doesn’t make money from their Nexus devices, nor from their Android phones being sold by others. They make their money by advertising through those devices, but we’ve already touched on that.

    Motorola? They did not sell it the same way they bought it. They took all the patents from the package first, before selling them. Would I lose money if I sold you an empty candy wrapper for half the price after I took and ate the candy?

    A P/E of 33 is about right for Google, if you compare it to a competitor of theirs, Yahoo, who have 31 P/E.

    At first, I just thought you were uninformed, but with all the falsehoods in your post above, there is no way. I say you are just lying.

    Please don’t waste my time, and please stop to deceive others into investing in AAPL, as for some people, it’s their retirement money that’s being thrown into the fire, just to boost up your interests in AAPL.

  6. Ok, then never mind. I’ll let you get educated on your own time.

  7. Never said that we are or are not investing in Samsung. Just said that AAPL is overvalued, especially when compared to comparable companies in the industry, like Samsung.

    We used to hold positions in AAPL a few years ago, but when things started getting out of hand with its value, we jumped out, and were baffled to see it rising and rising to $700. Still way overvalued due to customer sentiment (that translates to their stock choices), mind you.

  8. Rich Steinberg | Mar 6, 2014, 9:55 pm at 9:55 pm |

    Absolutely not.

  9. Rich Steinberg | Mar 6, 2014, 9:51 pm at 9:51 pm |

    I’m talking about Google the company, not the search product. They’re not a search company, they’re an advertising company. They completely ruined YouTube by throwing ads into practically every video. Regardless of what you may think of Google and how much you love them, they are evil. Their methods are unethical, their products and services generate more than half the spam and junk mail received in your inbox and they make their search results slanted and biased by elevating their paid advertising partners within their search results. By doing this, rather than getting search results that are the best match for me, they give me the ones that are best for them. I stay clear of them at all costs. Thankfully there are lots of companies emerging that are creating services that allow us anti-Google Internet users to circumvent their eyes, ears and ads.

    Android. Even with 3x the marketshare, Google makes more revenue from iOS than they do with Android. Google Glass will never be an accepted product, either. Too many security/safety/privacy issues. It’s already being banned in public places and it’s still a beta device. They also make no profit from their Nexus devices.

    Get real. A P/E of 33? Nothing about Google’s business deserves that lofty valuation. They lost $12B on Motorola Mobility. They p!ss money away and spend way too much on acquisitions, ie. Nest. Google’s share price is where it is because their PR is firing on all 8 cylinders right now. It’s a bubble that is about to correct. I suppose you think Amazon is undervalued, too?

    Justify the current share price of GOOG for me and then explain why AAPL is worth less than half the value of its current price.

  10. How are you investing in Samsung?

  11. but they are different industries. You can’t compare the two.
    Delta airlines has a P/E of less than 3. AAPL is now a positive ripoff, right?
    Or maybe compare them to LinkedIn with a P/E of 955? Wow, Apple is a bargain!

    No. Apple should be compared to apples. Or, more specifically other similar-industry companies, like Samsung. Their P/E is 5.7. Go ahead and reach your own conclusions based on that.

  12. I think Google should warrant a higher price than google because it has a capital G.

  13. other way around, you mean?

  14. I don’t know which crack models you use, but our models show $200-270, with repatriated cash horde, and current income, discounting a disruptive product that will return Apple to growth.

  15. How is it vaporware? Definition from Wikipedia: Vaporware is a term in the computer industry that describes a product, typically computer hardware or software, that is announced to the general public but is never actually released nor officially cancelled.

    Has Google not been released? Sorry, I thought billions of people around the world have been using something called Google for the past 15 years. Please do your research before posting. I suggest you use Google to do your research, lol

  16. Wow, another amateur investor pipes up. For whatever god’s sake you believe in, THEY ARE NOT IN THE SAME INDUSTRY! Can’t compare the two. Open an intro to investment book, if you can’t grasp the concept.

  17. I started buying Google at the IPO and for a long time the P/E was ~50.
    Google looks cheap now, compared to that.
    Apple looks REALLY cheap now compared to that.
    The market must think that Apple is going to shrink.

  18. Rich Steinberg | Mar 6, 2014, 4:28 pm at 4:28 pm |

    He’s on crack. Subtract out Apple’s cash and AAPL should still be over $400. Google=vaporware and is wayyyy overpriced.

  19. Rich Steinberg | Mar 6, 2014, 4:25 pm at 4:25 pm |

    I agree 100%….as long as the second Google in your statement was intended to be Apple.

  20. Been saying this for years, there is no reason that Google should warrant a higher price than google. Insane.

  21. How in gods name can you come up with a price like this and value Google as high as it is?

  22. Are you a moron? Have you even valued the company with zero growth? This puts it over 600 a share. Even if you don’t back out cash there is no model that will give you a price of under 600 a share. Be informed before you speak.

  23. I totally agree with you. The stock is so pumped up and overvalued, with so many of the (as you call them) criminals on Wall St. lying and exaggerating things when it comes to AAPL. At the end, it’s the small investor, who doesn’t know how to make his own evaluations that gets scr*wed.

    It’s like a pyramid scheme, really: as long as these ‘criminals’ keep pumping up the stock artificially, and people keep believing them, the stock will stay up (or even go up), but when they decide it’s time to dump, it’s the small investors at the bottom of the pyramid that are left holding the bag.

  24. I don’t know if it’s criminal, but yes, and there is STILL manipulation and a LOT of subjectivity (positive mostly) when it comes to AAPL stock pricing. AAPL stock should cost $200-270, if evaluated objectively, and compared to other industry players.

  25. Don’t indulge him. The article isn’t about who has the longer penis. It’s about industry comparisons to evaluate stock :)

  26. Noone never said that Samsung, as a company, should cost as much as Apple. My point was that you should value the stock, based on P/E, by comparing similar industry companies. You don’t compare a car manufacturer and a binder manufacturer, and say “Oh, well, look at the P/E for the binder manufacturer: theirs is 10x better than BMW’s stock’s P/E, therefore BMW is undervalued”. No, you take another car manufacturer and then compare.
    Same goes for Apple and Google. Yes, they are both big, but one is an advertising company, one is an electronics company. Different risks, different rewards, different capital investments necessary.
    Google can be compared to Yahoo.
    Apple should be compared to Samsung. pretty simple. And Samsung’s P/E is 5.7. Now apply that number to Apple’s EPS of 40.32 (Earnings Per Share), and you get what price? $230.
    Criminally-overvalued.

  27. criminal manipulation was $705 with NO PRODUCT yet.

  28. Yes they do make as much money,
    Less margins , but sell more (hardware and components)

  29. Right… Cause Samsung makes as much money, or has the same margins as Apple does. Try again.

  30. Thanks..I’ve been searching for the right word. Criminally is perfect. And the criminals on Wall St. should be rounded up, fined and de-licensed; if not jailed for their obvious criminal manipulation and lies

  31. Exactly !!!!

  32. Why compare it to Google, though? The companies are not the same or in the same industry. One produces electronics, the other (other than Google Glass, which isn’t even widely-available yet) is an advertising company.

    Compare to Samsung, then go ahead and change the title to “Is Apple Inc. Stock Criminally Overvalued?”

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