Running The Numbers – Apple ($AAPL) still looking expensive
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Apple ($AAPL) announced quarter one results today. With the $AAPL share price over US$200 – 52-week range US$82.33-215.59 – we decided to have a quick look.
Valuecruncher Interactive Analysts Report For Apple ($AAPL)
We have the comparator group set as Microsoft ($MSFT), IBM ($IBM), Google ($GOOG) and Hewlett-Packard($HPQ). You can change these peer companies on the site. For example you could add:
- Research In Motion ($RIM) – Interactive Analyst Report For $RIM
- Palm ($PALM) – Interactive Analyst Report For $PALM
- Qualcomm ($QCOM) – Interactive Analyst Report For $QCOM
So what do we think?
Discounted Cash Flow Valuation
We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$189.23 for $AAPL – 6.7% below the current share price. We see $AAPL overvalued at the moment. But how about compared to a peer group?
Comparison Analysis
I changed the peer group companies to $IBM, $RIM, $QCOM and $GOOG. I am going to look at only one of the metrics we use at Valuecruncher – EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet – market capitalization doesn’t capture different capital structures when comparing companies. EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set.
On an EV/EBITDA basis $AAPLT is trading at 18.6x ($AAPL is being valued at 18.6x last year’s profit at the EBITDA line). A dollar of $AAPL EBITDA is worth more a dollar of $IBM (more than double), $RIM, $QCOM or $GOOG EBITDA. This is despite $AAPL making less margin at the EBITDA line than any of these comparators ($AAPL made a 22.8% EBITDA margin last year comparded with 23.0% at $IBM and 41.6% at $GOOG). There are still some steep expectations being priced into the current share price.
If we lower the $AAPL EV/EBITDA multiple to 17.5x (a slight premium to $QCOM) then this gives a share price of US$187.57 – 7.5% below the current share price. This valuation is in line with our DCF analysis.
Summary
Based on our DCF valuation – $AAPL looks overvalued. Looking at some comparators – the market is valuing $AAPL highly compared to some peers. We believe if you are investing in $AAPL at the current price – you are paying a full price and there are cheaper options available. We know that we will hear about that from the $AAPL fans out there however.
Disclosure: no positions.
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January 26th, 2010 at 5:53 pm
Another solid fundamental analysis. But as long as it keeps crushing expectations the market is going to continue paying a premium for it. And keep in mind that it doesn’t have anywhere near the float of say a MSFT, even though on a relative basis it is in far greater demand. Combine continued beating of expectations with restricted supply of shares, and you get higher prices. At least $250 before year end, assuming the market doesn’t do a restest of the bear lows. It’ll end badly eventually. But not this year.