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Apple: Path To $250 And Below

Mar. 06, 2020 10:20 AM ETApple Inc. (AAPL)107 Comments
Oleh Kombaiev profile picture
Oleh Kombaiev


  • Technically, Apple's stock price should drop another 15% to achieve the balanced state.
  • In terms of analysis of internal growth, Apple is overrated.
  • Apple is overvalued according to such fundamental multiples like P/BV and EV/IC.

The stock market is best associated with a pendulum. It's rarely balanced, but inevitably comes back to the balanced state from time to time.

It is very likely that the beginning of the COVID-19 epidemic determined the point at which the "market pendulum" changed its direction of movement. So, it's time to remind once again where Apple's (NASDAQ:AAPL) balanced price is.

1. Technical parameters

In the long run, Apple stock price, like any other growing public company's stock price, follows its long-term exponential trend. This trend acts as a specific average:

Now, the company's stock price is still above this trend by almost one standard deviation. All things being equal, technically, the stock price should drop another 15% to achieve the balanced state.Apple devition from long-term trend

2. Growth drivers

First of all, let's look at how the market capitalization of Apple responds to the growth of its absolute financial indicators. There are some interesting patterns here.

Over the last 10 years, Apple's capitalization has been in a qualitative linear relationship with its revenue:

Apple revenue vs mcapAnd here we must note two things. Over the past two years, the absolute size of the company's revenue has not grown much and the gross margin has even decreased:

At the same time, Apple's market capitalization grew by more than 50% only in 2019... And even if we take the analysts’ average expectations as a basis, within the bounds of the mentioned model, the company’s balanced price per share in Q4 2020 will be around $220, which is still lower than its current value.

Considering the long-term relationship between the EPS TTM absolute size and the company's capitalization, Apple's current price is also overvalued and should decrease by 20% to achieve the balanced state:

Apple EPS vs mcapLet's move on and look at how the growth of Apple's financial

This article was written by

Oleh Kombaiev profile picture
Individual investor, data and financial analyst. I am interested in investment decisions based on objective methods of modeling and statistical analysis. Besides, I pay much attention to the psychological aspects of decision making.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (107)

Interesting article as the model reflects the symptoms of the core drivers in the global stock markets from global techs to Unicorns.
Agree in general terms that the economy & markets over time find their own entropy.
At present we are at the beginning of a global reset, we may get a few “dead cat bounces” along the way.
Apple are a good barometer.. they will in my view like many other tech company’s have to evolve.. and pivot away from an over reliance on handsets.. look at investing in corporate cloud services, but also address the increasing pressure on the environmental impact from data centres.. One of Apples USP’s is that it keeps personal data on the phone and moves meta data into the cloud.. at a tangent to most techs.. other than say SalesForce.
Apple will need to reinvent its self in the New World that will emerge after this period of change.. great companies are forged in fires!
SEC Investigator2 profile picture
I knew once brokerage houses went to $0 trade costs that this would happen. The SEC must limit trades to 500 share trades or higher. There have been millions of trades in 1-10 share trade which is causing this drop.
Bradley Guichard profile picture
Right, only the rich get to trade. How nice.
@SEC Investigator2
congratulations, that's the dumbest thing i've read all day.
sell sell sell APPLE....who needs 5G phone, when they need a vaccine...China not buying phones and I am not buying one share. Path to $200 or less/share....the fall of the mighty!!!
Toastypro profile picture
As this article predicts Apple bulls watch out, more to come. It is on the way to $244 near to intermediate term. When it pops it may be a good time to unload or hold on until the stomach churns. I have no holdings since I unloaded all my Apple puts recently but may initiate six month puts when it pops back up.
azarlee profile picture
I must confess having bought into the dip yesterday.....
Datsyuk13 profile picture
Been through this with Apple before and as a board certified physician I think this virus is a huge nothing burger in the grand scheme of things. I trained with all these types of doctors in different parts of the country and many of them practice medicine like politicians practice politics. None of these politicians know what they’re talking about. It’s hype vs anti-hype politics with a manufactured oil pricing/production crisis created by a desperate communist regime thrown in the mix. I wash my hands frequently and avoid non-loved ones like the plague - pun intended. Apple is still a 3 bagger for me even at the current stock price. I’m ignoring this down market and if I lose I’ll blame myself.
Hudson Investments profile picture
@Oleh Kombaiev
I have followed Apple for years and owned it for years. I have seen significant downturns and I must tell you that they contributed to downturns in averages and especially ETF's.

I am not sharing your pessimism about Apple's ability to bounce back.

Their balance sheet is the strongest in the world. They have made some significant changes in their company to lower margin services businesses. Sure they are looking at dramatic pullbacks in China, a traditional lover of Apple products.

I wouldn't be surprised if the stock bounced back to the high 200's in the next several weeks.

Don't count Apple out.
Oleh Kombaiev profile picture

"...I have followed Apple for years and owned it for years..." You did not think that because of this you are not objective?

"...Their balance sheet is the strongest in the world. They have made some significant changes in their company to lower margin services businesses..."

I agree, but now its fundamental price is lower than the actual. And I do not think that a few weeks is enough to balance.
Hudson Investments profile picture
@Oleh Kombaiev

Apple is a great company with great leadership. Warren Buffett's number one investment still.

I am long Apple and love it for covered calls.
gametv profile picture
There is a very good reason Apple has outperformed revenue growth - the coming 5G transition. Investors are betting this sets off another upgrade cycle, similar to the impact of larger screen sizes. But this logic is flawed. 5G is a huge challenge to Apple. Chinese companies are likely to grow share in the transition, due to Apple lagging in terms of deployment. The Chinese market and other asian markets will likely see growth of Android phones, not Apple. The 5G revolution also does not offer really big consumer benefits, yet the bill of material costs rise, so we have a situation where the profit margins will get shrunk.

Apple services business is also going to be challenged as the app store faces headwinds from the transition to progressive web apps and anti-trust lawsuits.

The top 10 Nasdaq companies have account for much of the rally, and they are poised to finally break uptrends and sell off hard. The other growth market that is turning is cloud services - Google is cutting margins as they seek to become a major player in this area.

Apple, Microsoft, Amazon, Google are all great companies, but their business models will face challenges that will not meet investor expectations.
09 Mar. 2020
Apple has proven time again, it’s worth what everyone is willing to pay for it. While the economy is slowing here in the US, I still see it (and perhaps I’m wrong-certainly not the first time) the US will still be one of the best places for global investors to focus. Planning to average in at the lows here soon but not yet.
Heavy duty support at around $265.
That support will easily break soon. The only thing keeping this giant ship up are the buybacks and their huge cash position but in this market, all ships will sink.
Sold at $263. More plummeting to come by time next qtr results fall short in May. I’ll jump back in at $200 and stay long AAPL!
Space Money Madness profile picture
Smh . Why sell now. Guaranteed losses only guarantee one thing
EmilZola profile picture
More plummeting to come because you sold your shares, very funny! AAPL will be back in no time.
Why sell when you can double down. No reason to sell. Many reasons to buy at these lower numbers.
LONGBULL+ profile picture
guess Trinta you are forgetting one point
China seems to get control of Covid 19'
The big question is very simple.
Every country has to follow the same way quickly.
Take a short pain in locking down the virus and a country.
We will see a U turn in recovery soon......
Trinta profile picture
After ten years many of us are richer than we thought possible. Now the party is over. It was never sustainable and everyone with an education and who studied or read the “madness of crowds” knew this. As for me. I am out 100% - about 7% off the top. Sure tax hits and all that will come. But I have increased my line of credit and will load up on equities again one day. Just like in 2009 and 10. That is how one gets rich. Not a secret. Using borrowed money to buy both stock and real estate. Stock being so much easier to value and acquire.
But in a bear. Always in a bear.
Buffett is a good barometer to follow in the long and nasty bear to come... stay thirsty and have a mountain of cash and a fat line of cheap credit.
Space Money Madness profile picture
im Loving all the great discounts. Need more panic and more sell offs plz. Whoever has cash at the end wins haha
I’m still way ahead. Until we drop below $90 I’m good. And this is likely going to stop around 230 if it gets that low.

Remember the lower Apple goes the higher the rebound. I’m looking at this is if we see 230, we have 120 growth potential in a very short time once the fear calms down and earnings have sight of normality.
LONGBULL+ profile picture
Apple is finally moving again.
Will buy if it reaches $ 200 level.
Italy has fallen which country is next ? Oil fallen hard.
Recession is closing in.

China seeing good progress and less new Corona cases every day.
SEC Investigator2 profile picture
Apple to open $20 down tomorrow.
RedOakMania profile picture
Three things,

Everyday, Apple is taking $300-$350 million dollars of itself off the market via buybacks. In five years (FY2024), the share count will be < 3.4 billion. There is rapid reduction in the number of shares outstanding, especially when you look at it in 3 to 5 year increments. You miss this if you're only looking at snapshots in time.

Secondly, Apple was projecting material increases in revenue before the corona virus. The installed base of all products continues to grow for all products and GEOs. It is a matter of time before this translates into increased purchases. Increasing the installed base of very satisfied customers is really the only thing that matters long term for this company.

Third, you have given up on Apple's ability to introduce any new, impactful products. Such as the AirPods that launched 2 years ago and are now generating $15 billion/yr.

As this virus spreads, iPhones are going to be the very last thing everyone will ever want to give up.
You make some great points except that nearly everyone is bullish on this stock before this drop, sales on iphones are down y/y and iphones are the most expensive phones out there, android will eat their lunch.
Space Money Madness profile picture
2 words.... Five Geeeeeeee. Everyone loyal to apple will buy a new phone for the 5g. That is a lot of new iPhone sales
5G will be delayed. Factor that in
5ofDiamonds profile picture
Of the 200 stocks I purchased in the last 20 months, its strange that well known businesses like $AAPL, $GOOG, $AMZN, $NVDA, $ADBE, $SHW, $LMT have easily performed better than the rest of my buys.
Good growth stocks like you mentioned should be bought and Held! People sell out of panic instead of just holding them through the ups and downs and not trying to time the market. They are what are called the survivors.
ETF effects for the well known stocks?
nathanlane profile picture
You never mention the actual growth drivers for their stock. You compare their metrics to those of companies in different businesses. You ignore the fact that their growth drivers are already baked into the price of the stock.
kyle191 profile picture
i have the same views. i am a long time AAPL holder. Love the company... but the price fot too high and the value too low. Sold all my shares at $322. I have a buy order at $255. That is the price that I like AAPL in todays market.

Dropping to $100? If that happens we all have bigger problems than a low stock price.
Good luck to all
BboyMac profile picture
That’s perfect.
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