Einhorn: Wall Street Doesn’t Understand Apple

Apple's Wall StreetThe stock market simply doesn’t understand Apple, according to Greenlight Capital hedge fund manager David Einhorn. He believes that Wall Street sees Apple as a hardware company, when instead the company behaves as a software company.

That might be a tad simplistic, in that Apple does sell devices, but Mr. Einhorn was stressing that Apple has an ecosystem that has, “captured the consumer.” Once they buy an Apple product, he believes, they want the next one, and the one after that, according to coverage of a letter Mr. Einhorn sent to investors covered by Forbes.

Compare that to hardware-only companies—he used Motorola Mobility, which is now owned by Google. He called the company’s past hit, the RAZR, a, “one-time winner because when someone else made a phone that was just a little better, RAZR sales stopped.”

Mr. Einhorn also addressed some specific issues among Apple skeptics. The most amusing of his points was his refutation that people should be concerned about the idea of Apple’s stock price doubling to US$1,000 per share, which would value the company at $1 trillion.

“A trillion dollars?” he wrote rhetorically. “We’ve scoured the Nasdaq listing rules, reviewed the Securities Exchange Act of 1934, and engaged a leading numerologist. We can’t find any prohibition on trillion dollar market capitalizations.”

He said that Apple skeptics are “misguided,” and that Apple remains a cheap stock at its current valuation. With a price-to-earnings ratio of 14 and an 11x multiplier on future earnings, that Apple isn’t priced as a growth stock, and thus shares “remain cheap.”

Greenlight Capital owned 1.5 million shares of AAPL as of March 31st, 2012, a stake worth some $868 million as of Wednesday’s close of $579.17 per share, up $6.90 (+1.21%). That’s an increase from the 1.3 million shares the fund owned near the end of 2011.

Mr. Einhorn made a name for himself by shorting shares of Lehman Brothers before that firm’s collapse. In May of 2011, he began calling for the ouster of Steve Ballmer as Microsoft’s CEO.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.