on finding a great bargain

…But let’s take the “Android hypothesis” (i.e. that Android is causal to Apple’s share price) seriously and analyze it. How could the impact be measured?

Since Apple is trading at a fraction of (a) historic multiple (b) multiple based on growth (c) comparable companies’ multiples then we can assume that a “normal” valuation would be twice the current (i.e. a multiple of about 32). That would still be a discount to growth and history but it would begin to match some of the comparables. A doubling of the P/E would be a good start.

But a multiple of 32 would imply a doubling of market cap, which means that the Android hypothesis is causing the evaporation of about $300 billion in future profits. So it stands to reason that it’s responsible for a $300 billion destruction of Apple shareholder value.

That’s an interesting number since Google itself is only worth about $169 billion.

The measurement then presents a remedy: If Apple bought Google (it already has a third of its value in cash) and it shut down Android, it could create $300 billion in value. If could even throw away all of Google and still walk out with a profit.

Seems like a great bargain.

via Is Android responsible for Apple’s deep market discount? | asymco.

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