What Would Apple Look Like at $500/Share?

| About: Apple Inc. (AAPL)

A few days ago, I posted an article lamenting the fact that I could have bought Apple (NASDAQ:AAPL) stock on June 20 below $315, but I did not. Apple is now at $357.20 per share, 13.3% above the June 20 close of $315.32 and approximately 15% above the intraday low when Apple briefly sank below $312 per share.

Now assuming your time machine is in the shop, this 13-15% increase is water under the bridge. A reasonable investor cannot get anchored to a certain price or level. He or she needs to assess the current price and evaluate what the fundamental value of the company is and then compare that value to the current trading price of the stock. Whether or not one could have purchased the stock for less previously is irrelevant to the decision today.

Now that the market has bounced and Apple is off of its recent lows as a way to try to “unanchor” my thought process from that $312 price, I thought it would be both an interesting and helpful exercise to think about what Apple would look like at some future price. With analysis price targets anywhere from $450 to $600 per share, let’s look at Apple at $500 per share -- which its stock would have to increase 40% to reach.

Apple’s Financial Metrics at $500 Per Share

Price per Share

Market Capitalization

$468 billion

Enterprise Value

$402 billion

EV to Consensus FY2011E EBITDA

12.3 x

EV to Consensus FY2012E EBITDA

10.2 x

EV to LTM Free Cash Flow

17.3 x

LTM Free Cash Flow Yield

5.0 %

Consensus FY2011E Free cash Flow Yield

5.8 %

Consensus FY2012E Free cash Flow Yield


Price to Consensus FY2011E EPS

20.0 x

Price to Consensus FY2012E EPS

17.2 x

EV to Consensus FY2011E EPS

16.7 x

EV to Consensus FY2012E EPS

13.2 x

Source: Bloomberg


Some investors get scared by the absolute size of Apple at $500. Apple as a $468 billion market cap company redefines "tech giant" -- but hasn’t it already, to some extent? The nagging question of whether a company that sells cell phones, computers, and other consumer electronic devices can be that large is something some investors cannot get past.

Assuming you get past this size point, some of these multiples seem perfectly reasonable. In particular, stripping out Apple’s massive cash hoard and looking at enterprise value (or market cap less cash) as a multiple of earning makes Apple at $500 per share seem inexpensive. With a fiscal year of September, Apple’s 2012 earnings are only a year and a half away. Typically, investors focus on one-year forward earnings, which would put Apple at $500 between 13 and 16x. And this calculation removes the interest income generated by Apple’s cash hoard from the denominator for a true apples-to-apples (pun intended) comparison.

So if you're like me and frankly feel stupid for missing Apple at $312, you can still make a material return if you believe in Apple at $500.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.