“In a DCF analysis, the fair price of the stock is determined by estimating the present value of the future free cash flow,” Holmstrøm writes. “While this is a relatively simple task in itself, the quality of the DCF-model is completely dependent upon the assumptions you make in the process.”
Holmstrøm writes, “I think many bears are looking at Apple in the wrong way. They are seeing quarters with no year-over-year growth due to declining margins, and have therefore come to the conclusion that Apple is a ‘bad’ company. But after having crushed the numbers, I conclude that Apple is still a very attractive investment. This is primarily due to the low P/E ratio of the company (it is priced very cheaply) and the expectations of increased tablet- and smartphone market sizes. Taking everything into account, I estimate that the fair value of Apple is roughly $621.”
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Apple closes below $400, down 43.5% from September high – June 26, 2013