Since December, Apple stock price has been growing at the super-exponential rate. This phenomenon is rarely observed in nature, and when it appears, it indicates a temporary and unstable state.
From the point of view of the key patterns between the parameters of the financial performance of Apple and its price, the company is extremely overvalued.
Apple’s beta is relatively high. Potentially, it is very risky.
I believe that Apple stock price will rise above $300. And then... I will write another article about Apple.
So, as I promised, here is my new article on the company.
1. Technical Parameters
In the long run, Apple stock price, like any other average public company's stock price, has been following its long-term exponential trend:
From December 2019, the actual price of Apple stock has been deviating from this trend by more than one standard deviation:
In other words, this means that since December, Apple stock price has been growing at a super-exponential rate. And according to Saxo Bank's research, "HOW TO SPOT A BUBBLE":
... This phenomenon is rarely observed in nature, and when it appears, it indicates a temporary and unstable state...
The annual total price return of Apple is at the level of a multi-year high. It also looks rather unstable:
At a glance, in the context of the trend and return analysis, Apple stock price is extremely overvalued.
2. Growth drivers
In case of Apple, there are several strong dependencies which allow us to judge how balanced the company's price is.
The first one is the long-term relationship between the revenue TTM absolute size and the company’s capitalization:
This relationship identifies Apple’s current capitalization as extremely overvalued. Within the bounds of this relationship, all other things being equal, the stock price should drop by 50% so that the balanced state can be achieved.
Considering the long-term relationship between EBITDA's absolute size and the company's capitalization, Apple’s current price is even more overvalued:
The same conclusion is true for the relationship between the FCF TTM absolute size and the company's capitalization:
Further, having considered the long-term relationship between Apple’s revenue growth rate and its EV/Revenue multiple, it should be recognized that the current price of the company is not normal at all. Judge for yourself - in the last quarter, Apple’s revenue growth rate was negative. But in the same period, the EV/Revenue multiple is at a record high:
The same conclusion is true of the EV/EBITDA multiple. Considering that the company’s EBITDA shows negative growth rate, the balanced level of this multiple is about the level of 11:
There are also some specific dependencies, all of which characterize Apple as extremely overvalued:
In terms of well-established relationships, Apple's current price is unprecedentedly overvalued.
3. Comparable valuation
Having conducted a considerable number of comparative analyses of the Apple's multiples, some of which I published earlier, I came to the conclusion that the comparison based on the forward-priced multiples gives the most qualitative result. In this case, I mean the P/E multiple calculated on the basis of expected earnings and adjusted for the forecasted earnings growth rates in the next fiscal year.
It turns out that judging by this multiple, Apple stock price is 9% below the balanced level. But this can't be called a huge undervaluation.
4. Risk Parameters
In general, beta is a good indicator of speculative interest of investors who tend to actively buy stock in a positive market and quickly sell it even if the market slightly falls.
The current value of Apple’s beta coefficient is 1.19%, which is relatively high.
I want to note that in case of this company, the high beta is combined with a record exceedance of the actual stock price above the long-term trend. Potentially, it is very risky.
At the same time, Apple's Bearish Beta (a measure of how a stock price tends to drop when the market is only down) is lower than the Bullish Beta (a measure of how a stock price tends to rise when the market is only on the rise):
It means that Apple stock is more responsive to the overall growth of the stock market than to its decline. But how long does it last?
Based on the foregoing, the reasons for buying AAPL at the current price are becoming fewer and fewer. More than that, speaking of Apple, I believe that we are dealing with a local, so to speak, small bubble. Therefore, buying Apple stock at the current price is no longer an investment, but a lottery with a small chance of winning.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.