“While there are no $17,000 price targets for shares of Apple (AAPL) (yet), with the stock topping $500 per share on Monday, there is a vigorous debate as to what price the stock should realistically trade at,” Bespoke Investment Group writes for Seeking Alpha. “Is the current price overvalued, undervalued, or fairly valued?”
“At times like this, it often helps to compare the stock in question to similar stocks to see how they are valued,” Bespoke Investment Group writes. “At a current price of $502.50, Apple trades at 11.8 times this year’s expected earnings. The S&P 500 now trades at 13.5 times earnings on a weighted basis, while the average P/E ratio of the 500 stocks in the index on an unweighted basis is 17.7 times earnings.”
“Let’s just assume that given its phenomenal growth rate, that Apple were to trade at a valuation similar to the Technology/Web stocks in the S&P 500 with the highest multiples. Currently, the three stocks in similar sectors to AAPL with the highest P/E ratios are Amazon (AMZN), Salesforce (CRM), and Netflix (NFLX). These stocks have multiples ranging from 78.8 times earnings (AMZN) to 422.5 times earnings (NFLX),” Bespoke Investment Group writes. “If AAPL were to trade at a multiple similar to any of these names, the stock would currently be massively undervalued. Based on AMZN’s multiple, AAPL would trade at more than $3,300. If it had CRM’s multiple, the stock would trade at more than $4,000 per share. Finally, if AAPL had a multiple similar to NFLX, the stock would trade at just under $18,000 per share!”
Read more in the full article, plus see a table of the P/E ratios of comparable stocks to Apple along with theoretical AAPL share prices, here.
[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]