Spoiler alert: I'm buying more Apple for the real-money account I manage for The Motley Fool. Most of us are pretty darn familiar with the iPhone, iPad, and Mac maker, so let's get to the rationale.

An Apple share that was $700 just a few months ago is now in the high $400s. The market fears that Apple's growth prospects are no longer as rosy since its size has grown and its competition has gotten fiercer. In its latest quarter, its top line grew a still-impressive 18%, but its earnings per share actually fell (very slightly).

Among the factors weighing down Apple's margins were an unprecedented number of product launches (including the smaller, lower-priced tablet offering, the iPad mini) and some supply chain bottlenecks. As a result, its gross margin fell from 44.7% a year ago to 38.6% this last quarter. There are mitigations, but that's a pretty hefty drop. Bigger picture, there are many ways Apple's margins can compress, including increased competition, changes in wireless carrier subsidies, faster product cycles, and the usual tech disruption that comes out of nowhere. And on both the top and bottom lines, Apple faces a tougher road as it tries to grow an already large business.


Another criticism of Apple is its failure to return enough of its $137 billion (and growing!) cash hoard to investors. Let's tackle this one really quickly because the criticism annoys me. First of all, almost 70% of that cash is foreign and would suffer taxation if returned. Second, breaking from the Steve Jobs mentality, CEO Tim Cook already instituted regular dividends last year. Sure, there's plenty of room to grow them, but Apple yields over 2% at current prices. Not an amazing yield, but not a bad start. And finally, what's been great about Apple is that it hasn't historically blown its cash on large, ill-conceived acquisitions. For contrast, Hewlett-Packard has shown what truly horrible capital allocation looks like (see the Autonomy and Palm acquisitions). Nitpicking Apple for its conservative use of cash is missing the forest for the trees. We invest in Apple for its business prospects, not its ability to play Wall Street with its bank account.

Getting back to Apple's future profitability, there is real risk -- as there is with any company. I can't predict what the future holds, but I like the odds we're getting with Apple at current prices. At $475 a share, its trailing P/E ratio is 10.5. Factoring in that cash hoard in its entirety, it drops to 7.2. If you prefer free cash flow to net income, those multiples are even a bit lower.

Those are the multiples that a lagging, second-tier company deserves -- not a revolutionary, best-in-class company with three-year compounded sales and EPS growth rates north of 50%. Like In-N-Out Burger or the Beatles, Apple creates things that people line up for. Unlike just about every other large company on the planet, Apple's having trouble making its products fast enough to meet consumer demand. Apple's also a company that has a huge opportunity in the TV space in addition to the 18% sales growth it posted on its current lineup of smartphones, tablets, and computers.

Can you imagine? A company that has too much cash, too much demand for its products, and legitimate areas for growth trading at dirt cheap earnings multiples? I like these odds, and I'm buying more Apple.

More on Apple
The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and you portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The article Why I'm Buying More Apple Stock originally appeared on Fool.com.

Anand Chokkavelu, CFA, owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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