Advertisement: Save up to $100 on a New Mac and Printer via Apple Store Online.
“Yet, as anyone who takes valuation seriously knows, stocks are seldom valued on their trailing P/E ratio,” Zaky writes. “Instead, the market tends to value stocks based on their future expected earnings and long-term expected growth rate. Cash also plays a very important role in the analysis, but not in the way one would expect.”
“So setting aside the issue of Apple’s enormous cash position, Wall Street analysts are generally modeling for Apple to earn $14.43 in EPS for fiscal 2010 and approximately $17.47 for fiscal 2011 – that’s annual earnings growth of about 21%. As far as what is expected out of the company over the next five years, analysts are modeling for about 18% earnings growth,” Zaky writes. “Thus, based on these conservative variables, Apple should be currently trading at about 18 times next year’s earnings of $17.47 in EPS, or about $314.46 a share. That’s $54.46 below Friday’s close.”
Zaky writes, “Based on $20 in EPS for fiscal 2011, Apple should be trading between $380 and $400 in late 2011 or early 2012 assuming a multiple of 20. This price target beats the Street by nearly $70 and presents a conservative, simple, and straightforward analysis of Apple’s valuation.”
There’s much more in the full article – recommended – here.
Should be funny to watch how many people comment on this story pointing out that AAPL is down big today and their ensuing reasons why.
Then we add the almost $50 a share of cash in the bank (I assume).
One could only hope.
What’s a Zaky? Sounds painful.
The mansion in the bad neighborhood(s). Is Apple stock value being dragged down by the old school IT slums and the sad and pathetic riff raft existence of their neighbors (That would be Dell, Microsoft, RIMM, …)
As Apple crushed these markets and turns them into Apple orchards, this will change.
It will split shares before getting so high/unit. Better sell more with a better price range…
People, global always trumps local. The whole market is down today. World economic trends will trounce any stock no matter how solid. If the stock market tanks, so will Apple and no analysis will save it…
That was a sound article and it was useful to have someone explain how the market thinks.
I would love aapl to get up to $400 in 2011 since I own shares for the long term. But I think it will be hard given the markets ability to ignore Apple’s success over the past few years.
The point about Apple’s valuation requiring the cash to be subtracted from the market cap is interesting and probably means someone would have to spend more to buy M$ than for Apple.
I’m hoping we can see another price jump this year to approach $300. Apple’s share appear to ned to set new highs and lows and trade within those for a while before the market have enough confidence to go higher again. I think we’re nearing the end of this cycle now. Maybe the next quarters earnings (back to school bonus included) will be the impetus for appl to soar up to $300. That’s only a 10% increase over the last high so it is possible.
Apple is down today for the same reason it’s down every other day: profit taking. Then everyone will dump their money back into Apple because it’ll go back up again. When the market in general stabilizes Apple will take off and get above $350. JMO.
almux,
Split won’t make any difference. Berkshire-Hathaway (BRK.A) trades at $117,000 per single share. And let’s not forget, even Google trades at almost $500. I can’t think of anyone wanting to buy AAPL, but not being able to, because they can’t afford $300.
And when it reaches/exceeds $300, it will become the largest publicly traded company in the US.
@MacMan
Sadly, you are right. Apple is the premier company of the markets, but when the entire market crashes, those with the most recent growth get hit the hardest as stockholders grab for whatever profits they have left. Late yesterday the Fed essentially admitted the stimulus program has failed. No wonder, since decades of debt-funded stimulus is what got us in trouble. They don’t have any other ideas and austerity is currently unsellable to the electorate. This could get ugly and if so, AAPL will be slashed no matter how brilliant.
Meanwhile the markets plummet.
This also explains Microsoft, Dell, HP, etc. These stocks are languishing because Apple’s growth is going to come from their respective dominate market shares.
When looking at Apple, realizing the market share they own, vs what they can capture, this stock has a long way to run yet, assuming Jobs has done a good job of imbedding into Apples culture the product development, vision and focus he exhibits as it’s leader today.
The only problem is that Apple is 100% dependent on the ideas and vision of one man: Steve Jobs. You’re not investing in a company, you’re investing in a single human being. Once Steve Jobs retires or (god forbid) dies, Apple’s shares will plummet, Apple’s innovation will come to an end, no new product categories will ever again come out of Apple, and Apple will be just like all the other tech companies out there. So this stock can NOT keep going up forever.
p.s. If you don’t believe me, look what happened the last time Steve Jobs wasn’t at Apple for 12 years. The company was 90 days away from bankruptcy, as Steve Jobs himself said in his All Things Digital 2010 interview.
@MacBill
The fallacy of historical repetition.
Even if Jobs drops dead tomorrow, the company isn’t in the same position (or anywhere close) to where it was before he departed the first time.
There’s no basis to conclude, therefore, that the same outcome will result.
To those who wish to get in on Apple stock but lack the $ to buy whole shares, there are a number of brokers that allow you to invest in stocks via $ amounts. This way on a schedule or as you add money to your account you can build your portfolio. Most have no set minimum and have fairly low fees.
I won’t name names, but you can check it out for yourself. There is no reason an expensive stock like Apple has to be out of your reach.
BUT
– you need to read AZ on the market generally ie headed for a big correction
– and these facts were true almost two years ago when I almost, but did not sell at $180.. only to see it hit $79 within weeks…
or about $314.46 a share. That’s $54.46 below Friday’s close.”
What Bull! Apple shares closed at $260 Friday. NOT $360.
This is bullshit. Apple will not hit 300 no matter what its fundamentals are when we have this azswipe Kenyan for president. What a farce. He is worse than that moron Jimmy Carter. Apple might move up if this dumbass gets kicked out of office, not before. Fundamentals do not matter at all. No wonder Apple does not give a shit about investors …. most are owners of stock for hours or maybe days so why would they even care.
This is nothing more than old man Zaky trying to manipulate the stock price.
In a bull market, no doubt about it. In the current economy is definitely not a sure thing within that timeframe. That’s an accurate and simple analysis. If you’re willing to wait more than a year or two, buy it up.
@x
I agree that Obama’s allegiance to Keynesianism is making the ongoing economic crisis worse. But if you are looking for culprits in the Oval Office, by far the biggest contributors to this mess were Reagan and especially GW Bush, who indulged in a weird, inverted sort of Keynesianism. Ironically the only president in the last 35years to post a (technical) budgetary surplus was the Liberal Democrat Bill Clinton.
Obama is a follower of Keynes like I’m Steve Jobs. Fully half of the stimulus was tax cuts- more Uncle Milton than JMK. About another quarter were block payments to states to keep them from insolvency as tax revenues dried up and the demand for state services soared. Factor in the little stuff and maybe 20% was demand side stimulus.
@Predrag
I disagree. I would consider buying Apple now, if I could afford more than a couple of shares, which I can’t. Split it, and I’d probably finally bite.
I’ve never directly bought stock in my life, (I have multiple retirement accounts and pensions I pay into), but Apple is clearly only going up, and I’d love to own some. It would be an interesting learning experience for me.
@almux
Stock shares are not like iPods. Selling more doesnt make their sales rise. A stock split doesnt increase the value of the shares any more than me giving you two 10 dollar bills for your 20 dollar bill will give you more cash. It’s the same amount of value split into two units.