SAN FRANCISCO -- Apple, already the most valuable U.S. company in history, has room to grow further as its stock trades at a discount to the Nasdaq Composite Index and the company prepares an upgrade to its best-selling iPhone.
Investors value Apple at 15.4 times trailing 12-month earnings, while the average company in the 2,495-member Nasdaq trades at 16.5 times, according to data compiled by Bloomberg. The company rose to a record $665.15 on Aug. 20, giving it a market value of $623.5 billion, the highest-ever for a U.S.- based company.
Apple's profit growth has outpaced its share increase, contributing to the lower price-to-earnings ratio. While the stock has jumped more than 80-fold in the past decade, earnings per share have gained more than 300-fold to $28.05 a share last fiscal year from 9 cents in 2002. Projections for further gains reflect optimism that Chief Executive Officer Tim Cook will use $117.2 billion in cash to keep growing in markets such as mobile devices, while pushing into new ones, including televisions.
"Apple has more fundamentals backing the company's market cap," said Shaw Wu, an analyst at Sterne Agee & Leach in San Francisco. "They have a lot of earnings, and lot of cash, which a lot of companies can't really claim."
Shares of Cupertino, Calif.-based Apple would be worth more than $703 if the company were valued on par with the rest of the Nasdaq. Analysts, on average, are predicting that the stock will increase to $736.70 in 12 months, data compiled by Bloomberg show.
"People spend a lot of time thinking about the market cap," said Peter Karazeris, an equity analyst at Thrivent Financial for Lutherans, which owns Apple stock. "I expect the market cap to go up, but it will because of execution and cash generation, not because of the multiple."
Successful companies often trade at lower multiples than smaller rivals, if only because it harder for them to maintain fast growth rates, said Anand Srinivasan, a senior analyst at Bloomberg Industries.
Investors' attitudes toward Apple in the coming months will hinge on the success of the next iPhone. The company will unveil a revamped version of the handset on Sept. 12, two people with knowledge of the company's plans said last month. The company will probably sell as many as 250 million units over the life of the device, analysts at FBR Capital Markets said.
Besides the iPhone, Apple plans to unveil a smaller, cheaper iPad this year, people familiar with the plans said in July. The company also is in talks with at least one large U.S. cable company about teaming up to carry live television and other content through an Apple-designed device, a person with knowledge of the plans said last week.
The pace of Apple's profit and share-price increases will hinge on the company's ability to keep cranking out best-selling products, said Dan Morgan, a senior portfolio manager at Synovus Trust Co. in Atlanta.
"There's a lot of people like me who are concerned that they're driving growth almost purely through new products," Morgan said. "What happens when its markets mature? I think of Apple as this consumer-products dynamo that has kept coming up with stuff that college kids want to buy, and that the rest of us then want, too. But how long can that continue?"
Apple's newer products, the iPhone and the iPad, accounted for more than 60 percent of revenue in the last fiscal year, while the iPod's share has shrunk to 6.9 percent.
Maintaining profit margins could also be a challenge as Apple enters the market for TVs, where margins are thinner than for other electronics.
Still, Apple is reliant on more than just new products. It's also gaining share among new customer groups, notably corporations. The number of iPhones in the Fortune 500 has more than doubled and the number of iPads has more then tripled in the past year, Apple executives said during a call with analysts last month.
Apple is expanding its sales force to take better advantage of this opportunity, and working more closely with companies that want to focus their in-house software development on mobile apps for these devices rather than on traditional PCs.
"Apple has made huge inroads in the enterprise," said Maribel Lopez, founder of Lopez Research, a technology consulting and market research firm. "Every company I talk to that has a mobile strategy has an Apple strategy. It's been a huge mind shift."
Barring unforeseen macroeconomic headwinds, Apple should be able to grow without endangering its premium brand position with consumers, said Giri Cherukuri, an portfolio manager at Oakbrook Investments in Lisle, Ill. Rather than create lower-priced versions with lower-quality parts, the company has expanded its market to lower-income shoppers by selling older-model iPhones and iPads at reduced prices.
Since the price Apple pays for the electronic parts in these products falls even faster than the price Apple charges, "it's a more profitable approach," he said. "It's a better strategy to address these markets with older models at cheaper prices, rather than with cheaper models."
In terms of market capitalization, Apple ranks ahead of next-largest Exxon Mobil by more than $200 billion. Microsoft held the No. 3 spot Tuesday with $258.2 billion, even after trading as high as $616.3 billion on Dec. 27, 1999.
Ten years ago, General Electric held the top spot, with a market value of $321.4 billion. The Fairfield, Conn.- based company has since fallen to No. 8 as declines in its shares during the financial crisis prove difficult to reverse.
PetroChina Co. became the world's first company to be valued at $1 trillion, when the shares almost tripled on its first day of trading in Shanghai in 2007. It's now the world's fourth most-valuable company with a market capitalization of $253.1 billion.