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Chad interesting analysis. If you're interested in a different perspective, feel free to check my recent posting on seekingalpha.com. While it's definitely drawn the ire of Apple fanatics, my analysis leads me to believe AAPL is priced at or somewhat above its intrinsic value (focused strictly at earnings). I'm basing this on: (1) it will be extremely for AAPL to grow earnings at 20% annually for the next 10 years, and (2) AAPL's on a major product development treadmill.
Feb 08 10:27 am
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All Comments by Daniel Agramonte »Apple's Valuation Is Looking Attractive Again [View article]
To elaborate on the first point, all one has to do is look at AAPL's financials for the last 10 years. Revenue is up at about 20% annually ($5.9B in 1998, $24B in 2007). Earnings, however, have increased by 30% annually. This is phenomenal. The difference? Growing margins. In 1998, margins were about 5%. In 2007? 15%. Again, this is phenomenal. AAPL is focusing on high-margin businesses (iTunes, videos, etc.) by reinventing themselves (they even changed their name last year) and 'value pricing' their products. Can it go on? Well, that gets me to the 2nd point.
AAPL is on an innovation treadmill. The cash it's sitting on is actually an insurance policy (a hedge of sorts, if you will) in case they make a bad bet. An analogy? MSFT and the XBox. How much have they plowed into the XBox? Has it paid off? The jury is still out. The interesting part is that AAPL has to plow the earth to retain their prime mover status which is why they enjoy the fat margins. This means they will have to continue to push the envelope, which inevitably means they will roll the dice. Eventually, they'll come up snake eyes (are you old enough to remember Betamax?).
For AAPL, my sense is 20% earnings growth for 10 years--which is still great. At that rate, intrinsic value is about $90/share. You pile on the cash and deferred revenues (which I would still argue is nothing more than an insurance policy against taking on long term debt), and you might get to close to what the stock is trading for. Is it a bargain? At best it's priced at fair value with a ton of execution risk.