Apple Stock Valuation

Apple is talked about almost daily if not hourly, so I figured I would put in my two cents. Apple was founded on April 1st, 1976 by Steve Jobs and Steve Wozniak in a Garage in California. Since then there has been many trials and tribulations, some of which almost brought Apple to bankruptcy. Today Apple in is in a different position, the top of the consumer technology industry. Some people see the unexpectedly high share price and assume it is a very expensive stock, that is simply not the case and here is why.

Based on Share Price of 571.75

P/E Ratio: 12.9

Price to Book: 4.5

Price to Sales: 3.5

Price to Cashflow: 10.6

Dividend Yield: 0.9% ($2.65 per share)

Based on next years earnings with growth factored in AAPL is trading at a forward P/E of 9.3

B/V per share: 125.66

During the most recent quarter 26.9 million iPhones were sold (58% Y.O.Y growth), 14 million iPads sold (26% Y.O.Y growth), 4.9 million Macs (1% Y.O.Y growth), and 5.3 million iPods (19% Y.O.Y unit decline). Earnings before tax margin has been continually expanding over the most recent 9 years. There is speculation margins will be effected after renewing their new product line but consumer price point levels will be maintained and margins will return to the equilibrium (roughly 35%) short to medium term. iPhone and iPad sales are continuing to impress, although missing some analyst expectations the growth is still much intact.

  • Almost all money managers/hedge fund managers have exposure to Apple and it is heavily weighted in the Nasdaq, QQQ, and SPY.

The 10-year revenue growth average is roughly 39.10% and a 10-year operating income average of 124.48% both are extremely impressive. Some say Apple is running into the law of large numbers and can not continue to grow at these rates. Although I some what agree with that statement, I believe Apple will continue to grow, only at a slower pace. Apple has a mind-blowing 2012 ROE of 42.8% attributable to alpha of management.

That brings us to the current share price. Apple is worth 550 Billion measured by market cap, and may be the first to 1 Trillion. Although it will take time and predictable growth it can be done, but the bulk of shareholder gains will come from distribution in the form of dividends and share buy-backs. Apple is a company worth holding but at what price? Long-term trend lines show support around the 510 and 490 price levels as well as a 200 day moving average at $594 (resistance). I would suggest we are in a trading range until $595-$600 is broken on volume. As a longer term holding I would aim to buy in the 495-515 range and hold the shares until Apple’s growth starts to run out of fuel. I would suggest a 3-5 year price target of $900 and a 1 year target of $650. Consider buying up to $575 but the higher price you pay comes with a lower margin of safety and lower expected returns.

200 and 50 Day moving averages, RSI (top), MACD (bottom)

You must conduct your own research, know your risks, and always do your due diligence before investing or trading.

Disclosure: I have no positions mentioned but my initiate a position in the next 72 hours.


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