najdorf

Replacing P/E in Valuing Apple Stock

While it's nice to tell yourself that you see something about AAPL that the big investors don't get, it's unlikely that those managing large blocks of money haven't examined AAPL's cash flow. The information is readily available and up-front in any financial report. Everyone knows that cash matters because the concept is intuitive. So why exactly do you think that the stock market would collectively undervalue AAPL's cashflow?

Everyone on this site and other internet sources already agrees that AAPL is a great buy. Doesn't that suggest that the share price is probably pretty fair? That AAPL will continue to grow but eventually level out or run into a problem? That the success of the iPhone will encourage other manufacturers to develop similar phones and compete with AAPL on pricing? Why should AAPL's share price grow faster than the market as a whole? It's a very well-followed company that most people love. Isn't it more likely that you would find an undervalued company by looking for an unknown in a boring industry that most investors don't know about?

Frankly, I'm glad AAPL is sticking to conventional accounting and EPS reporting: CF information is there too if you want to read it, but we have standards for a reason. I try to stay away from companies that put big emphasis on "pro forma" or "EBITDA" or "earnings excluding items".