Kyle Hickey's  Instablog

Closing the week at $166.78 (After hours, 166.52), I think that Apple is still a good play with plenty of upside potential... here's why:


Zack's is estimating an EPS of $5.81 for FY ending September 27, 2009 (lets assume an accuracy range of about $5.40 - 6.20).

A quick price history of Apple:

Year   EPS    P/E Ratio
2008   5.48   30.94
2007   4.04   37.99
2006   2.36   32.96
2005   1.64   32.69
2004   0.75   25.03
2003   0.19   54.47
2002   0.18   40.89

Excluding the highest (54.47) and the lowest (25.03) P/E, we can calculate an average P/E of 35.02 over the last seven years.

...If

EPS = $5.40 & P/E = 35.02, AAPL = $189.13
EPS = $5.81 & P/E = 35.02, AAPL = $203.49
EPS = $6.20 & P/E = 35.02, AAPL = $217.15

Now, ranging our P/E ratio from 30 - 40:

EPS = $5.40 & P/E = 30.00, AAPL = $162.00
EPS = $5.81 & P/E = 30.00, AAPL = $174.30
EPS = $6.20 & P/E = 30.00, AAPL = $186.00

EPS = $5.40 & P/E = 40.00, AAPL = $216.00
EPS = $5.81 & P/E = 40.00, AAPL = $232.40
EPS = $6.20 & P/E = 40.00, AAPL = $248.00

Couple these numbers with 2010 esitmates of $6.70 EPS and products that consumers are truely passionate about and I think you have a solid addition to your portfolio.

At close today, AAPL P/E = 29.15.

Disclosure: Long AAPL

Playing with a few variables tells us that at $457.10, Google is still a bargin.

Zack's is estimating an EPS of $18.94 (high: 19.40, low: 18.32) for FY ending December 31, 2009.

A quick price history of Google:

Year   EPS     P/E Ratio
2008   15.80  19.49
2007   13.29  52.03
2006   9.94    46.33
2005   5.23    79.32

Excluding the highest (79.32) and the lowest (19.49) P/E, we can calculate an average P/E of 49.17 over the last four years.

...If

EPS = $18.94 & P/E = 49.17, GOOG = $931.43
EPS = $18.32 & P/E = 49.17, GOOG = $900.79
EPS = $19.40 & P/E = 49.17, GOOG = $953.90

If you feel that a P/E of 49.17 is too high, consider a much lower P/E of 30.

EPS = $18.94 & P/E = 30 GOOG = $568.20
EPS = $18.32 & P/E = 30 GOOG = $549.60
EPS = $19.40 & P/E = 30 GOOG = $582.00

Should earnings come in at the lowest estimate of $18.32, then breakeven ($457.10) would require a P/E of 24.95, low by our calculations.

At close today, GOOG had a P/E of 31.77.

Disclosure: Long GOOG