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“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.
But a cheaper stock price does allow more small investors to buy. If someone was to put $100 a month into stock portfolio he would only be able to buy a share of Apple every three months whereas at $25 a share he would be buying shares every month. He would of course invest the same in total but at any point have a slightly bigger piece of AAPL.
@Hugh
The end result is the same, because splitting the stock also splits the value. A $250 share becomes $125.
Splitting generally would benefit investors in the days when brokers required investors to buy in lots of 100 shares. Those days are gone. People can buy as little as one share or even partial shares through online brokers. So buying one share at $250 or two shares at $125 are essentially the same thing.
Surely the end of the penultimate paragraph is wrong:
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.”
It should read ABOVE Friday’s close.