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Stock Analyst Update

The Market Is Too Sour on Apple Computer

PC maker is hurting, but cherry-picking the shares seems like a good idea.


What Happened?
Apple Computer (AAPL) reported fiscal fourth-quarter operating earnings per share of $0.30 Wednesday evening, a penny short of already reduced expectations. Weak educational sales and sluggish results for its new Cube G4 computer were key reasons for the shortfall. Management dramatically reduced the revenue outlook for 2001 to $7.5-$8 billion, which would be on par with the sales the firm generated through the close of the current fiscal year. Sales in the December quarter will also likely be poor, reflecting Apple's efforts to reduce inventory levels.

What It Means For Investors
With shares trading around $17.25 after-hours Wednesday, we think that Apple presents a significant buying opportunity for investors in spite of its problems. Yes, Cube G4 sales are disappointing and Apple has lost the top spot in the educational market to PC boxmaker Dell (DELL). But amid the torrent of bad news this quarter, Apple still managed to generate $200 million in cash. Add this to Apple's treasure chest of $4 billion, take out the debt, and you're left with about $12.50 per share in cash alone. With the stock down as much as it is and most of the company's current market value accounted for in cash on the firm's balance sheet, we think the market has painted an overly bearish picture on Apple.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.