Apple's common stock is currently trading at $460 per share. The latest quarterly earnings of Apple showed that the company earned $39 per share (i.e., EPS) in 2012. Most analysts expect this EPS to hold for Apple in 2013. Google and Facebook, two of Apple's potential competitors in US, are currently trading at P/E ratio of 20 and 40, respectively. What would you say about the valuation of Apple's stock currently relative to Google and Facebook using only the P/E multiples apparoch?
1. The P/E mutiples approach would suggest that Google and Facebook are undervalued compared to Apple because Apple has little propsects for future growth in the smart phone market.
2. The P/E mutiples approach would suggest that Apple is currently overvalued relative to Google and Facebook.
3. None of the answers given here are correct.
4. Analysts should not use the P/E multiples approach because it is totally flawed in efficient financial markets.
5. The P/E mutiples approach would suggest that Apple is currently correctly-priced relative to Google and Facebook