Must-know: Apple’s valuation versus Google and Microsoft

AAPL stock

Apple’s stock is trading at a forward P/E of 12.5x, which is lower than its main peers, Google (GOOG) and Microsoft (MSFT). The company’s current P/E of 13.7x is higher than its peers Microsoft and Hewlett-Packard (HPQ). Google is leading, with a 31.0x P/E. Apple has a dividend yield of 2.14%, below that of Microsoft. Apple’s profit and operating margins are almost in line with those of its main peers, Google and Microsoft. Note that some funds specialize in technology investments such as Apple, such as the USAA Science and Technology Fund (a mutual fund), or the Technology SPDR ETF.

Apple’s recent quarterly revenue was $57.6 billion, and its net profit was $13.1 billion, or $14.50 per diluted share, compared to revenue of $54.5 billion and net profit of $13.1 billion, or $13.81 per diluted share, in the same quarter last year. The company forecast revenue for its current quarter of between $42 billion and $44 billion—below analyst estimates.

According to industry research from Bloomberg, the two big themes for the mobile phone industry in 2014 are a continued shift in growth to emerging markets and a slowdown in the premium smartphone segment. Growth in the smartphone market has shifted to emerging markets, where customers are increasingly upgrading from feature phones to low-end smartphones. This has prompted companies to expand product lines to include low-end phones. This might impact the profitability of companies such as Apple.

The worldwide smartphone market grew 38.8% year-over-year in the third quarter of 2013 (3Q13), according to IDC. With already strong growth in 3Q13 and multiple vendors launching flagship models, the market will be poised to reach 1 billion units for the year. This is a significant milestone, considering that the market shipped just half a billion units in 2011. Moving forward, what remains to be seen is how the various companies and platforms will stay differentiated and relevant in the increasingly competitive market, as IDC said in its release.