Why Apple shares are undervalued by as much as 50%

“Over the last couple of months, the share price of Apple (AAPL) has stabilized somewhat in the $400-450 range,” Mathias Holmstrøm writes for Seeking Alpha. “But is this new ‘low’ really a fair estimate of the fundamental value of the stock, or is it based on irrational fear?”

“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.”

Read more in the full article here.

Related article:
Apple closes below $400, down 43.5% from September high – June 26, 2013

30 Comments

        1. To be fair, it is more like MS, Google, etc are overvalued, rather than Apple undervalued.

          For now, financial people have no firm indication that Apple will enter new markets, and classic markets, except for tablets — yes, even smartphones — are in saturation or in decline.

          For this quarter Apple expects to sell high 20s-low 30s million iPhones, but it is nothing new, I am surprised why market reacts to analysts expectations while Apple itself said this, naming revenue target.

          The only way how Apple could avoid calendar Q2-Q3 downs is to make big products that would be updated in spring. For example, iPhone MAXI, or whatever else. As of now, they did not come to this new cycle yet, so their sales will be strong for calendar Q4, Q1, and then down in Q2, Q3.

          1. >classic markets, except for tablets — yes, even smartphones — are in saturation or in decline.<
            Not sure where you live, but here in Asia things are just taking off. With iphones on China Mobile and Docomo in Japan over the next year or so, and India waiting in the wings, there's hardly saturation. If markets really are discounting the present value of future growth, they're doing a miserable job at it.

      1. Well, actually I don’t owe you any explanation about anything. And you have no credibility to pass out. Nor am I a fanboy like you who needs constant reaffirmation by the others. My comment was about the idiot from Seeking Alpha. Or would he only be an idiot had he come up with a hit whore piece that was negative about Apple? Well? Cmon genius. Touch a nerve did I? Down a bunch in AAPL? Yes you are. Because you felt the need to try to jump on me and vent your anger. How did that work out for you Skippy? And there’s more to investing than being able to read about the latest P/E of a company. That seems to be the extent of your investing knowledge. You certainly repeat it often enough. If you knew much about investing you wouldn’t be underwater. Go ahead, tell everybody how you’re not underwater. I’ll bet you bought Apple at seven dollars too. I’d bitch slap you some more in front of all your friends but I have work to do. Some of us have to work. I make my living with Macs. As opposed to just surfing the net.

        1. Calling someone an idiot while saying you owe no explanation as to why means you yourself are little better than the village idiot shouting on the street corner.

          Back up your opinions, don’t just rant.

        2. In other words, you have no logical explanation. P/E is the standard measurement of a stock’s value. I chose it because it is SO elementary, and so hard to argue with. The proof is that you CAN’T argue with it. There you are holding your limp little dick in your hand with nothing intelligent to say. Bitch slap? Any time, anywhere, pal. And oh, if you make your living with Macs, what are you doing hanging out trolling on the net all day? Me? I’m retired early because of my Apple investments early on. I can do whatever I want all day. So go fuck yourself.

          1. Again, my comment was about the idiot from Seeking Alpha. I have no respect for the hit whore writers from Seeking Alpha. He could have written a negative piece about Apple and I would still have made the same comment. But of course as a fanboy you failed to consider that. You only assumed that it is your place in life to sit on a website all day long and attack anyone that you think that has a negative comment about Apple. Thus your idiotic response to my comment. Who asked you anyway? I don’t remember asking you what you thought. Did I mention your name? Did I run down Apple? No. And who cares if someone does have a negative comment regarding Apple? Idiot! Who appointed you chief fanboy? Why would any adult attack someone in defense of a company? A little immature wouldn’t you say Zeke? Don’t have a life Zeke? And since you say you are retired this is all you can do in life? Sit on a website and play fanboy all day long? That’s a bit embarrassing. We all understand what the P/E represents. I’ve been investing for a long time and can discuss stocks and options anytime you’re ready. As I said, you certainly throw out P/E all the time. So that’s probably the extent of your knowledge. My original comment had nothing to do with P/E soI’m not sure how you interjected that into my comment? But a fanboy doesn’t need to use logic. Do you? Any excuse to act like a spoil 10 year old kid and you jump at the opportunity. You’re a pathetic old man Zeke. You’re retired early because of your investment in AAPL? Bullshit! Surely if you were retired you would have something better to do than sit on a website all the time Zeke! You’re either out of work or fucking off on company time Zeke. You’ve lost tons of money in AAPL and are just simply pissed off at the world Zeke. Sad. You’re a pathetic old man Zeke. That’s right Zeke, I make my living with Macs. Have forever. As I run my own business I’m my own boss. Something you wouldn’t understand Zeke. So I have different times during my day when I have some downtime. You on the other hand seem to have nothing else in life but this website. “I’m a retired early and I can do what I want all day .” And this is the best you can do Zeke? Nah, you’re a liar. Sad. Must bother you immensely that I make my living as a professional with Macs as all you do with a computer (Dell) is post to this website. Well, that and watch porn. I’ll have some new Mac Pros when they’re available. I’ll let you know what a real computer is like Zeke. Get a life Zeke Get a job Zeke. Do something constructive with your life Zeke. You’re a pathetic old man.

            1. You’re pathetic. You know nothing about me, and yet you feel the need to make your own ASSumptions in public. Is that because you’re feeling a little inferior?

              I’m 6’0″, 225 pounds with a 36″ waist. I stack 100 pound bales of hay above my head (so come and slap me anytime you like). Yeah, hay…my Apple investments paid for my farm.

              I have no need of porn. My wife is 30 years younger than I am,and she’s gorgeous. Money will do that for you. My daughter is 2, and I get to play with her all day long on any given day if I want to.

              You keep plugging away at your one horse, SMALL business. If you work hard maybe some day it will be a big business. I’d suggest that if you want that to happen you devote more time to it, and less to jacking up your pathetic ego by trying to lord it over everyone else on an obscure internet forum.

              A business built around supporting Macs? Who is so clueless that they need a consultant to set up and operate their Macs for them? Or is yours one of those second tier Apple “partner” stores, where they try hard, but nothing is quite right?

              Oh yeah, and before I retired last year I was a senior systems administrator on a Linux/IBM system with an Oracle DB collecting 50 GB of live data on the backhaul over a proprietary mesh network RF system every day. My salary was 6 figures. I have head hunters calling me now weekly.

      1. There are many of us, not all can give such good voice like CognativeDisonance but we all must try in our own way. The World is all of us, not just the corporate voices. Please, you continue to try too.

  1. After a lot of thought, I think there are at least two good reasons why AAPL is down.

    1) The mutual fund managers want volatility – they need to manipulate stocks in order to profit. They play their little mutual-fund manager games amongst each other, seeing who can trigger a herd reaction and be on the winning side of that landslide. Now AAPL is down, later it will be up. It’s too big a part of the NASDAQ – heck, the entire market – to be ignored like this forever.

    2) The professional money manager crowd hates the fact that tens of millions of individuals have purchased AAPL stock on their own, without paying money management fees to the money manager crowd. If these tens of millions of individual, thinking investors can make money without the money manager crowd then who needs the money managers?? The money manager crowd wants the individual, free-range investor to fail. There’s incentive across the entire financial management industry to lower the price of AAPL as far and for as long as possible to shake out the individual investors.

    The stock market and financial industry is severely rigged against individual “retail” investors. Profits are made by using insider information and by seeding false information to the public, thereby temporarily creating runs or sells on certain stocks.

    While I don’t think there is a formal conspiracy to manipulate the stock, there are systemic reasons why AAPL is down. None of those reasons have anything to do with Apple or its performance in the actual market (not stock market) in which it competes. All of those systemic reasons have to do with the parasites that are the financial industry.

    1. This is really excellent analysis. The institutions and the hedge funds are the big players, and they want to shake out the individual investors to bring down the price.

      Which brings an interesting question: when does Apple buy shares back? The lower the price, the more shares Apple can buy back, which reduces the number of shares that institutions can pump and dump. Apple can reduce the number of shares outstanding by 15% at current prices. Should they do it now?

      I imagine that’s why they hired the Italian Guy from Xerox to properly game this.

      My wild guess: Apple will announce an even bigger buy back plan next spring after they demonstrate even larger cash flow from 2013/2014 holiday results.

  2. I think Bloomberg has connection with Samsung or being bought by Samsung which called American investors to invest in Korea. Read on for yourselves guys.

    S.Korean shares extend gains on Samsung Elec, foreign buying.
    * Foreign investors buy following 14 straight sessions of selling

    * Samsung Elec shares jump after hitting a 9-1/2-mth low

    * Woori Finance units rally on privatisation expectations

    SEOUL, June 27 (Reuters) – Seoul shares extended gains and rose 2.6 percent on Thursday as foreign investors turned net buyers and as Samsung Electronics shares, the largest component on the main KOSPI, rallied after a prolonged correction..
    “The market is seeing a technical rebound on bargain hunting, but (upward moves) probably are not being established as a trend … the stance on emerging markets is still cautious,” said Lim Soo-gyoun, a market analyst at Samsung Securities.

    Foreign buying was modest at a net 12.8 billion Korean won ($11.09 million), but still poised to snap 14 straight sessions of selling.

    The Korea Composite Stock Price Index was up at 1,830.21 points as of 0142 GMT.

    http://www.reuters.com/article/2013/06/27/markets-korea-stocks-idUSL3N0F30FZ20130627?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=43

    1. You’re right, in my opinion, to mistrust most Reuters, Bloomberg, and WSJ financial reporting out of South Korea. FT can be hit or miss. Samsung Electronic stock has cratered big time for weeks, but had a relief rally today, possibly manufactured in order to put SK Pres. Park Geun-hye in a good light during her summit in China, which began today. As usual with markets, there much more going on than is ever reported.

  3. 1-Apple has conceded the Server and enterprise market.
    2-Apple is abandoning the pro creative market with the Mac Mini Pro HTPC masquerading as a workstation.
    3-Apple’s internet services are also-ran me too instead of class leading. Nothing special to see.
    4-Apple has pissed away any first mover advantage in video with Apple TV. Other than long existing DRM laced iTunes video content there is nothing unique to Apple’s TV offering.
    5-Apple Phone sales are slipping overseas.
    6-Apple has chosen to piss away the hard won cash pile to please Wall Street.
    7-The best selling laptop on Amazon is a Samsung Chromebook- not any Apple laptop.
    8-iOS 7 looks like the bastard child of a drunken hook up between Windows and Android. Translation: Ives is a copy cat with a me too, fugly mess.
    9-Apple is losing professional staff to other companies over cheapskate pay and a tanking stock price.
    10-Apple’s only growth path on the current trajectory is into lower margin markets and Apple has blossomed feeding on high margin markets. You can now finance your iPhone in China.

    Before some Fanboi calls this trolling, exactly which part of any of this is untrue.

    1. 1 – Apple has conceded the Server and enterprise market

      Servers, yes. Apple (like Pixar before them) has recognized the facts. You can’t differentiate in that space. It’s all about commodity hardware and custom software with no UI or external-facing elements. This is not who Apple is.

      Enterprise, not at all. Enterprise is going Apple like crazy. iPads & iPhones are everywhere. I don’t see Android in that space.

      2-Apple is abandoning the pro creative market with the Mac Mini Pro HTPC masquerading as a workstation.

      Nope. It’s evolving, sure. Even photographers and graphic designers are using iMacs & Mac Books theses days. The new Mac Pro is a screamer. It’s great for 3D & video. And even pros aren’t using many cards these days (only 20% of Mac Pro users stuff a card in one). The workstation is dead.

      3-Apple’s internet services are also-ran me too instead of class leading. Nothing special to see.

      Maybe. But iWork looks killer. If they keep doing that, they’ll be fine. I love that mapping is coming to the desktop via a native Mac application.

      4-Apple has pissed away any first mover advantage in video with Apple TV. Other than long existing DRM laced iTunes video content there is nothing unique to Apple’s TV offering.

      This is early days yet. With the right offering they could leap-frog Netflix.

      5-Apple Phone sales are slipping overseas.

      Doubt that very much. But even if it has, Apple owns and can hold on to the most profitable chunk of a very lucrative market that will be around for a long time.

      6-Apple has chosen to piss away the hard won cash pile to please Wall Street.

      Apple borrowed the money for the buy-back. And yet the savings they make from not having to pay dividends on those shares more than pays the interest on the borrowed money. I hate finance tricks, but this was smart.

      7-The best selling laptop on Amazon is a Samsung Chromebook- not any Apple laptop.

      And??? The best selling car is a Honda Civic, but it’s not putting everyone else out of business. The Chromebook does not look promising. Chrome OS does not look promising.

      8-iOS 7 looks like the bastard child of a drunken hook up between Windows and Android. Translation: Ives is a copy cat with a me too, fugly mess.

      Looks pretty good to me. Clean, fresh, fun, sophisticated.

      9-Apple is losing professional staff to other companies over cheapskate pay and a tanking stock price.

      And if it becomes a problem, they have the money to offer even more competitive salaries. Apple will continue to bring out game-changing new products every 3-5 years. As long as they’re doing that, there will be people who want to work there.

      10-Apple’s only growth path on the current trajectory is into lower margin markets and Apple has blossomed feeding on high margin markets. You can now finance your iPhone in China.

      Or they could invent another new market, as they’ve been doing every 3-5 years. More likely they’ll work on multiple fronts: invent completely new product lines, globalize them, AND guiding existing products into very profitable positions as the markets mature.

  4. Is there really such a thing as fair value of a company? A stock is only worth as much as someone would pay for it. Kind of like a Picasso painting. I’ve seen some expensive ones and I wouldn’t pay a buck for any of them. It’s just cheap paint splattered on canvas. That’s how Wall Street sees Apple. I’m looking at Apple long-term with ever more increasing dividends. I still think there are so many things Apple can do to generate revenue, so I’m not worried even if Apple sinks lower during July and August (possibly $370). That’s the breaks.

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