“The stock market’s bull run will not last forever. Many large tech companies are already trading at stretched premiums. Yet, Apple is one company which has everything going for it, yet, for now, it still trades at a discount to fair value,” Michael Wiggins De Oliveira writes for Seeking Alpha. “Yet, as shown by the pop in its share price post-earnings, the market is now slowly starting to appreciate the scope of the opportunity. Succinctly said, this undervaluation won’t remain available forever. For now, the risk-reward is highly appealing, but even more important, an investment in Apple is relatively safe.”
“While Apple certainly continues to perform astonishingly well with its iPhone sales, the gross margin on the iPhone does not weigh up to what its Services segment can do,” De Oliveira writes. “Given that Apple’s Services now has more than 300 million subscribers, there is clearly a huge demand to enjoy its ecosystem… To put into perspective Apple’s 300 million subscribers, we should think about Netflix’s cash-burning business model and how investors are willing to pay up $140 billion to become Netflix’s shareholders which has less than half the number of Apple’s subscribers.”
“Furthermore, given that Apple is likely to finish FY 2018 generating around $60 billion of free cash flow, together with [Apple CFO Luca] Maestri’s ambition to get to a net cash neutral position, even without much in the way of revenue growth, say around 5-6%, and investors could quite easily see Apple’s EPS number grow with a CAGR of roughly 13-15%,” De Oliveira writes. “Now, we should note, given Apple’s ability to convert its earnings to free cash flow at or just above 100%, investors should over time come to reward Apple’s EPS line with a higher multiple.”
Read more in the full article here.
MacDailyNews Take: On one thing we can certainly agree: Apple is horribly undervalued, especially in relation to its so-called “peers” (so-called, because Apple is peerless).
Some people are always saying Apple is undervalued but year after year it remains valued the same way. So, why does it stay that way? Because it is properly valued as far as Wall Street is concerned. Why get Apple shareholders all excited over something that will never change? Apple must be missing some key factor that other companies have such as market share dominance. The only thing that puzzles me is how Apple’s retail brick-and-mortar value seems to be worthless to Wall Street. That’s something no other tech company has and it should be worth some premium. There has to be some market dominance because supposedly all those Apple stores are highly profitable. It would take years (if ever) for another tech company to match Apple’s brick-and-mortar presence.
I really wonder why Netflix is valued so highly. It doesn’t seem to have such a huge moat (monthly subscribers?) and it’s not highly profitable. All I know is that big investors seem to like the company immensely and that’s all there is to it. I would think if Apple started a bundled video/music streaming service it could definitely cut into any possible Netflix profit.
I remember years ago how the Apple bulls used to say how powerful the huge number Apple accounts would become for Apple, but that never seemed to happen. Apple must never have been able to monetize them properly like Amazon is doing with its Prime accounts.
Anyway, Brian White’s target price of $275 seems irrational, so I guess he wants to keep his name as a “secret.” Fat chance of $275 happening in the near future.
You’re certainly entitled to your opinion. But you’re wrong. Apple prays people listen to you as it continues a slow motion buy out/privatization of itself. It’s been taking advantage of all the manipulators (who I image you might know well) get in cahoots with complicit press because Apple generates so many clicks for them, and in the mean time has ten choice buybacks.
iPhone X plus has very big pent up demand, and new larger size phablet market entry for Apple is more pent up demand. That and pent up demand for th 6.1” model that is cheaper opens access to pent up demand for the faceid small bezel model at a lower price point. Apple revenue will be on a tear at least through 2019. They will continue to print more and more money and buy more of itself back taking more advantage of the manipulators than they do of it.
No! Don’t even mention Apple (a corporation) taking itself private. Can’t happen. It is not possible for a publicly traded corporation to take itself private using shareholder assets. Can’t happen. Period. Do not propagate this nonsense ever again.
Apple’s pe has gone up by about 8 points since jan 2016,…. and aprox 5 points since jan 2017…. the trend is up and and 25 is not that far away.
if they are able to show continued aggressive growth in services and subscription business and hopfully show some moderste growth in hardware as well through new prodand and organic growth… And demonstrate overall stability…… i don’t see a pe of 20+ out of reach, even 25 !
20% combined growth in earnings through the above, plus 2-3 point pe growth due to stability and services and subscription revenue diversification …will get us to 270ish …
This is a very plausible senstio imo.. in the next 12- 18 months .
Mind you netflix has 1/2 the subscribers Apple does… 150 mil vs 300 mil
Plus Apple has 1.3 billion active devices.. and estimated 600 million active customers.
Correction..
Apple’s total worldwide customer base was estimated to be 600 million in 2016..
2017 it was estimated to be around 700 million.
2018 i would assume would be well over 700 million….
when Brian White was also a butt of jokes, but history proved him more than prescient.
Pre-split, he had a $1000 share price. It took 3 years, but the ridicule dissolved.
His $275 target seems much more measured and realistic…esp in light of articles like this one.
Typo corrected ( my bad, but wish mdn would allow editing posts)
>>
Apple’s pe has gone up by about 8 points since jan 2016,…. and aprox 5 points since jan 2017…. the trend is up and and 25 is not that far away.
if they are able to show continued aggressive growth in service and subscription business and hopfully show some moderate growth in hardware as well through new products and organic growth… And demonstrate overall stability…… i don’t see a pe of 20+ out of reach, even 25 !
20% combined growth in earnings through the above, plus 2-3 point pe growth due to stability and servic/subscription revenue diversification …will get us to 270ish …
This is a very plausible scenario imo.. in the next 12- 18 months .
Mind you Netflix has 1/2 the subscribers Apple does… 150 mil vs 300 mil
Plus Apple has 1.3 billion active devices.. and estimated 700million+ active customers.
Typo in the article title. That should be “AMAZON’S irrational share price”.