Apple Just Keeps Rolling Along

Its visionary CEO took an indefinite leave of absence and its key suppliers were crippled by a 9.0 earthquake, tsunami, and radiation catastrophe, yet the Apple express keeps rolling along to another blowout quarter.

Apple, the world's biggest tech company, reported record earnings for its fiscal second quarter Wednesday, posting revenue of $24.67 billion while largely avoiding supply-chain issues caused by the natural disasters in Japan.

The company's profit grew 95 percent to $5.99 billion, amid skyrocketing growth in iPhone sales. Earnings were $6.40 per share. Those numbers compare with revenue of $13.50 billion, profit of $3.07 billion and earnings per share of $3.33 a year ago.

The numbers beat estimates from analysts, who predicted $23.4 billion in revenue and earnings per share of $5.39 on average, according to data compiled by Bloomberg.

Last July I thought Google was the better investment (I hold both companies in my portfolio), and for a few months that seemed to be true. Now Apple has achieved separation, outstripping not only Google but the Nasdaq index by far.

Since July, AAPL has significantly outperformed GOOG and the Nasdaq.

Many investors are loathe to pay $342.41 (today's close, before the earnings announcement) for a stock that fetched $80 a little over two years ago. Apple stock resembles the big bang: it has exploded from (near) nothingness to become the second-most valuable company in the world, a stone's throw from Exxon-Mobil. There is a natural inclination to be cautious, because we have seen sky-high tech valuations melt away overnight.

Once we break out the calculator, however, it's hard to argue that, as Gertrude Stein said of the City of Oakland, there is no there there. If Apple's earnings suddenly were to stop growing, its current annual net income would be about $25 per share per year. If one applies the long-term S&P 500 multiple of 15x to $25, Apple 's share value would be $375. And if one uses a 20x price-earnings ratio more suited to a growth company, the shares would be valued at $500. In fact, some analysts are predicting just that--here's one.

Earlier this year I sold some shares, fearing the effect of Steve Jobs' departure. What I should have done was to have the courage to follow the analysis. I'm holding on to the rest of them.