Is Apple undervalued?

One Seeking Alpha contributor looked at Apple through the lens of Warren Buffett's Buffettology principles. To no surprise, he mostly likes what he sees. Of course, Buffett ain't having any of it.

In a long analysis piece, Craig Walendziak on Thursday explored whether Apple is a Warren Buffett stock. He looked at Apple's market position, its earnings, fundamentals, and management.

To the question of whether the investor understands how the company works, Walendziak reminds us that Buffett famously has refused to invest in technology companies.

In 1998, at the peak of the technology boom, Warren Buffett shocked the Berkshire Hathaway investors meeting by stating that he would not be investing in technology stocks. When pressed on why, he stated he simply didn’t understand them. Buffett saw nothing wrong with taking a pass on companies he could not accurately value. In fact, when pressed on the matter Buffett responded with this gem of a quote: "If I taught a class, on my final exam I would take an Internet company and ask (my students), 'How much is this company worth?'" the Associated Press quoted Buffett as stating. "Anyone who would answer I would flunk."

I’ve heard many arguments that Buffett wouldn’t invest in Apple because it is a technology company. I think this is hogwash. Apple has transformed itself into a consumer staple. They make fantastic and innovative products and sell them to eagerly waiting customers. Its business model is simple and straight forward. Instead of making cola, they make computers.

I buy much but not all of Walendziak's reasoning. Yes, Apple is a technology company, and it makes computing device. But it's a company with great differences and its business model isn't so straightforward.

If Apple were a traditional tech company, it would be running with the pack making the usual tech products, like Dell and Hewlett-Packard and the rest. It would be one of the long list of companies that make "technology" for customers.

Instead, Apple delivers technological solutions that closely integrate hardware, systemware, application platforms, services and a support organization. Oh, and a good bit of innovation, something that is missing from the offerings of many of its competition. These are big differences.

When Walendziak compares cola to computers, he's looking at the PC market. As I mentioned in a recent post, there's a false underlying assumption in much of technology analysis: All computing devices are alike.

For example, I recently read an article about the iPad where Apple's new dual-core A5 processor was compared in the same breath with the Nvidia Tegra 2 processor used in the Xoom, or with the Qualcomm Snapdragon processor. To the author, all dual-core processors are alike. Come on!

So, a Macintosh isn't a Wintel PC. They are not the same thing, even if you can boot up Windows on a Mac. Ask any Mac user if they want to run Windows 24/7 and they will tell you "no!"

Meanwhile, Walendziak says Apple is undervalued.

At 18.7% Apple’s ROE and SGR are both well above average. These numbers are good, but could be better. The lofty balance sheet and high BVPS lower these metrics considerably. Apple's P/E of 19.7 is considerably lower than its 39.5 7 year average. Normally this would be a sign of a stock's momentum slowing down, but with Apple this is not the case. Its five-year forward P/E Ratio is .76. For the second largest company in America this number is simply amazing. Its cash adjusted trailing P/E is barely 16. It baffles me when people call Apple expensive.

Walendziak provides many charts and visual aids. It's fun reading, check it out.

At the end, he admits that it's all a thought exercise.

Obviously, this article is a bit tongue in cheek. Buffett is not buying Apple and I don’t foresee him initiating a huge position anytime soon.

Still, it could happen, right?