Turley Muller

Air T vs. Apple? Not Even Close

Daniel,

I agree with what you are saying, but I'm not necessarily advocating projecting a growth rate after year 10. Just the value in perpetuity. So, let's just assume that AAPL continue to earn 28.11 every year after 10, hence zero growth.

So...
The PV of EPS for 1-10 is 101.74

Then the PV for 28.11 in years 11,12,13,14,......... 49,50,....
=28.11/.05=562.21
discount back from year 10-- 345.15

The total value of AAPL would be $446.89

I agree with your qualitative points. Spot on.

Air T vs. Apple? Not Even Close

Daniel,

What you could is assume that sales don't grow after year 10, or grow at the rate of inflation. just need a continuing value. The constant growth model is used.

EPS(10) * g (inflation) / (Ke - g)

Or 28.11 /.05 and then discount to present.

I would probably use a higher discount rate than 5% for the first 10 years since the growth is uncertain and volatile, hence risky. Yet, for the continuing value or mature phase, I would use 5% there.

Just my opinion

Air T vs. Apple? Not Even Close

One thing author leaves out- Value of EPS for years 11 to infinity? The continuing value or residual value. That's important, it would add a few hundred dollars to AAPL's valuation assuming 20% growth for 10 years discounted @ 5%.