Running The Numbers – Apple (AAPL) Looks Cheap
The on-going turmoil in the markets and analysts lowering estimates across the technology sector has had a big impact on Apple’s (AAPL) share price. AAPL finished at US$131.05 on the 22 September 2008 – 35% below the 52 week high of US$202.96. We decided to look at the underlying numbers for AAPL using the Valuecruncher on-line valuation model to see where we place the current share price.
Valuecruncher valuation model of AAPL with interactive assumptions
Valuecruncher produces a valuation of US$163.98 for AAPL. This is a current valuation not a target price. This valuation is 25% above the current share price of US$131.05 (note our model picks up an earlier price of US$140.91 because we completed the valuation earlier).
Assumptions
Our assumptions are revenues of US$32.5 billion in 2008 growing to US$50.0 billion in 2010. We have used an EBITDA margin of 20.5% in 2008 dropping to 19.5% in 2010. We used a terminal growth rate of 5.75%. We used a terminal capital expenditure number of US$1.25 billion. We have used a WACC (discount rate) of 10.0%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.
Our analysis incorporates the cash on the Apple balance sheet – Valuecruncher calculates a net debt number.
Based on our analysis the current share price looks cheap. Play with our assumptions – what does your analysis say?
Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.
Tags: AAPL
September 23rd, 2008 at 3:09 am
what is the assumed PE ratio after these calculations? Regardless of financial analysis, the bear market is telling us it wants PE ratios down as money flees to non-risk assets. how does valuecruncher take this into account? ie: what if the growth rate and profit outcome is the same, but the arbitrary trading multiple compresses.
September 23rd, 2008 at 8:04 am
Our valuation is a discounted cash flow (DCF) analysis. A DCF looks to determine the intrinsic value of the share - based on the cash flows of the business and their variability (risk). It doesn’t take financial market sentiment into account. The DCF is saying - “based on these assumptions then the value of the asset should be $X”. The market may have a different perspective.
Remember - valuation is not the same as price. Corporate finance theory would suggest these should be the same - but that isn’t always the case. The current events (September 2008) are certainly a case in point.
That said - our view is that the current market price is below the intrinsic value of AAPL. That is a good time to buy - if you can take a longer-term perspective.