Ahead of Apple's earnings, the numbers tell it all: If shares don't soar after its quarterly report, it will likely trade at valuation levels not seen since the depths of the financial crisis, making it the cheapest large-cap tech stock.
By Andy M. Zaky, contributor
FORTUNE -- As Apple prepares to report its fiscal second quarter results after the bell on Wednesday, a huge question on investors' minds is whether or not the stock's multi-year run will finally come to end. While nothing is certain, there is good reason to believe the bearishness in Apple is over, and that a new powerful rally is looming on the horizon.
If Apple is trading anywhere near the current price level come Thursday morning, the stock will become just as undervalued as it was during the financial crisis. Why? Because unless Apple's stock absolutely skyrockets over the next few trading sessions, its trailing price-to-earnings ratio -- currently at 18.5 -- is going to significantly contract due to the near 100% rise in quarterly earnings expected out of the company tomorrow. For an in-depth preview of what to expect out of Apple's upcoming earnings, see Philip Elmer-DeWitt's exhaustive earnings preview.
Based on a poll taken from top analysts who have near perfect accuracy in projecting Apple's quarterly earnings, Apple's trailing 12-month earnings per share is expected to rise from the current level of $17.92 to nearly $21.00 this week. This means that in order for Apple (AAPL) to maintain its already depressed P/E ratio, the stock would have to rise to $388.50 by Thursday. And that would only keep the stock trading at an 18.5 P/E ratio, which happens to be at the lowest end of its historical two-year range.
And if the stock doesn't move up at all or moves down on earnings, Apple's trailing P/E ratio will drop below 15.8 -- the lowest level since the market's March 2009 lows. This is exactly what makes tomorrow's earnings one for the books. Either Apple's stock will have to jump by more than $55 to keep its already miserable P/E ratio in tact, or the stock will likely fall to its lowest valuation since the depths of the financial crisis.
By Andy M. Zaky, contributor
FORTUNE -- As Apple prepares to report its fiscal second quarter results after the bell on Wednesday, a huge question on investors' minds is whether or not the stock's multi-year run will finally come to end. While nothing is certain, there is good reason to believe the bearishness in Apple is over, and that a new powerful rally is looming on the horizon.
If Apple is trading anywhere near the current price level come Thursday morning, the stock will become just as undervalued as it was during the financial crisis. Why? Because unless Apple's stock absolutely skyrockets over the next few trading sessions, its trailing price-to-earnings ratio -- currently at 18.5 -- is going to significantly contract due to the near 100% rise in quarterly earnings expected out of the company tomorrow. For an in-depth preview of what to expect out of Apple's upcoming earnings, see Philip Elmer-DeWitt's exhaustive earnings preview.
Based on a poll taken from top analysts who have near perfect accuracy in projecting Apple's quarterly earnings, Apple's trailing 12-month earnings per share is expected to rise from the current level of $17.92 to nearly $21.00 this week. This means that in order for Apple (AAPL) to maintain its already depressed P/E ratio, the stock would have to rise to $388.50 by Thursday. And that would only keep the stock trading at an 18.5 P/E ratio, which happens to be at the lowest end of its historical two-year range.
And if the stock doesn't move up at all or moves down on earnings, Apple's trailing P/E ratio will drop below 15.8 -- the lowest level since the market's March 2009 lows. This is exactly what makes tomorrow's earnings one for the books. Either Apple's stock will have to jump by more than $55 to keep its already miserable P/E ratio in tact, or the stock will likely fall to its lowest valuation since the depths of the financial crisis.
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