“Even after its current run-up to around $95/share, Apple’s trailing price/earnings ratio of 15.3 is much lower than the overall S&P 500 P/E of 19.4,” Gregg Rosenberg writes for Seeking Alpha. “Its valuation is roughly in line with ‘peers’ if you include in that group many troubled companies seeking a strategy, such as HP, Microsoft, Cisco, and Intel. However, unlike these “peers,” Apple shows no obvious signs of being a company in a shrinking market, or unable to execute or without a strategy.”
“Apple’s fundamentals are all measurably better than those of the average S&P 500 company. Its present profitability, brand strength, balance sheet, management and ability to execute are all observably first-class, and it has maintained these characteristics consistently for fifteen years,” Rosenberg writes. “Reviewing its recent price history, one can only conclude that market participants have been applying a severe risk discount to Apple relative to the average S&P 500 company. To understand how Apple’s price compares to its fair value, then, we need a risk-based valuation model.”
“When all aspects are fully priced in, we can see that even now at about $95-$96/share, it is priced with a sizable margin of safety for value investors and is far below fair value of $131/share,” Rosenberg writes. “I have to remark that the current market is a risk-on, aggressive investors’ market, with few companies priced at a fair value level. For Apple’s share price to reflect the same risk/reward posture towards Apple as market participants currently take to other companies with similar low risk/high reward profiles, its shares should be selling closer to $190 than $90.”
Much more in the full article here.