Did Warren Buffett Overpay For Apple? Gadfly Lays Out The Case

Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) can now claim to be a top 10 Apple Inc. AAPL shareholder.

Buffett, who has characteristically shied away from tech investments, reported a relatively small stake (at least by Buffett's standards) in Apple of around $1 billion last year.

Buffett's Apple holdings more than tripled in the fourth quarter alone to 57.4 million shares worth just shy of $8 billion. However, the investor that earned his fame for value plays didn't get much value this time around, according to Gadfly's Shira Ovide.

Related Link: Apple Investment Strategies: As Icahn Sells, Buffett And Einhorn Load Up

Ovide noted when Buffett's firm first made its Apple purchase, the stock was trading at a forward earnings ratio of 10.4, notably below its five-year average of 12. Maybe at that point Buffett got a good deal, but fast forward to the final three months of 2016 -- the time period when Buffett was most active in accumulating shares -- the stock was trading at an average price-to-forward earnings ratio of 12.4, now above the five-year average.

Today the stock is trading at around 14.4 times its estimated forward earnings, which is an even steeper price to pay if Buffett's firm continues to hit the buy button. Apple's valuation on its forward earnings peaked at 15.1 in late 2014.

On the other hand, Buffett does deserve some recognition. After all, he first started buying Apple's stock when it was south of $100 and for an investor that's known for not trying to time the market, he's doing just fine.