[AALee]

Can anyone who deals in shares tell me if this is a true reflection of the companies worth? I mean sure, it has high profit margins and revenues grow at roughly 40% every year... However can they really substain this growth? Surely the shares would tank massively the minute they have a less than stellar quarter?

http://allthingsd.com/20120410/apple...s-600-billion/

[SasV7ReJ]

I don't see anything wrong with that valuation.

Facebook's valuation is another story.

[PilotVertolet]

Apple's share price reflects an average of investors' present valuation for the future growth and profit-generating capabilities of Apple, with some discount applied.

How conservative is the market's estimate for valuation? The answer is, surprisingly, quite conservative. Using a discounted cashflow model with an 11% discount, annual free cash flow of around 40B and about 932M shares outstanding, the market's estimate for free cash flow growth built in to the current share price is mid single-digits. Around 5% annually for the next 5 years, 4% annually for the 5 years after that and 3% in perpetuity.

If you believe that Apple can grow its free cash flow faster than that, then you might elect to make an investment. Applying the same discount to growth estimates of 10%, 6.5% and 3% for the same time periods as above would put Apple's share price at over $200 higher than it is presently. If you look at the valuations some analysts are attaching to Apple's share price ($1000+), they believe it will grow even faster.

The question ultimately boils down to what you believe. How sustainable is Apple's business model and how quickly do you expect the company to grow? Personally, I am not convinced that Apple can keep this pace of growth up given the intensity of competition it faces, fickle consumer tastes and the loss of its visionary leadership... But I've been wrong about Apple time and time again. I certainly wouldn't bet against it. At the very least, Steve Jobs's steamship could keep on chugging for a long time before it really starts to sputter and slow. There's at least some advantage to being the 1000lb gorilla... And Apple's a 10,000lb gorilla.

Another consideration here is that Apple is presently the biggest and best thing since sliced bread. It alone makes up for around 4% of the S&P 500. Every mutual fund and institutional investor owns it. Everyone is universally positive on it. You may think, "Great! Everyone agrees so they must be right." Historically speaking, though, it's an indicator to the contrary.

[Anaedilla]

Apple's share price reflects an average of investors' present valuation for the future growth and profit-generating capabilities of Apple, with some discount applied.

How conservative is the market's estimate for valuation? The answer is, surprisingly, quite conservative. Using a discounted cashflow model with an 11% discount, annual free cash flow of around 40B and about 932M shares outstanding, the market's estimate for free cash flow growth built in to the current share price is mid single-digits. Around 5% annually for the next 5 years, 4% annually for the 5 years after that and 3% in perpetuity.

If you believe that Apple can grow its free cash flow faster than that, then you might elect to make an investment. Applying the same discount to growth estimates of 10%, 6.5% and 3% for the same time periods as above would put Apple's share price at over $200 higher than it is presently. If you look at the valuations some analysts are attaching to Apple's share price ($1000+), they believe it will grow even faster.

The question ultimately boils down to what you believe. How sustainable is Apple's business model and how quickly do you expect the company to grow? Personally, I am not convinced that Apple can keep this pace of growth up given the intensity of competition it faces, fickle consumer tastes and the loss of its visionary leadership... But I've been wrong about Apple time and time again. I certainly wouldn't bet against it. At the very least, Steve Jobs's steamship could keep on chugging for a long time before it really starts to sputter and slow. There's at least some advantage to being the 1000lb gorilla... And Apple's a 10,000lb gorilla.

Another consideration here is that Apple is presently the biggest and best thing since sliced bread. It alone makes up for around 4% of the S&P 500. Every mutual fund and institutional investor owns it. Everyone is universally positive on it. You may think, "Great! Everyone agrees so they must be right." Historically speaking, though, it's an indicator to the contrary.

Interesting post, cheers for that Inept.

[Katrinsitter]

Apple's share price reflects an average of investors' present valuation for the future growth and profit-generating capabilities of Apple, with some discount applied.

How conservative is the market's estimate for valuation? The answer is, surprisingly, quite conservative. Using a discounted cashflow model with an 11% discount, annual free cash flow of around 40B and about 932M shares outstanding, the market's estimate for free cash flow growth built in to the current share price is mid single-digits. Around 5% annually for the next 5 years, 4% annually for the 5 years after that and 3% in perpetuity.

If you believe that Apple can grow its free cash flow faster than that, then you might elect to make an investment. Applying the same discount to growth estimates of 10%, 6.5% and 3% for the same time periods as above would put Apple's share price at over $200 higher than it is presently. If you look at the valuations some analysts are attaching to Apple's share price ($1000+), they believe it will grow even faster.

The question ultimately boils down to what you believe. How sustainable is Apple's business model and how quickly do you expect the company to grow? Personally, I am not convinced that Apple can keep this pace of growth up given the intensity of competition it faces, fickle consumer tastes and the loss of its visionary leadership... But I've been wrong about Apple time and time again. I certainly wouldn't bet against it. At the very least, Steve Jobs's steamship could keep on chugging for a long time before it really starts to sputter and slow. There's at least some advantage to being the 1000lb gorilla... And Apple's a 10,000lb gorilla.

Another consideration here is that Apple is presently the biggest and best thing since sliced bread. It alone makes up for around 4% of the S&P 500. Every mutual fund and institutional investor owns it. Everyone is universally positive on it. You may think, "Great! Everyone agrees so they must be right." Historically speaking, though, it's an indicator to the contrary.

I was going to pm you a link to this thread, but I was sure you would reply! Thanks for the insightful input there. I am wondering; do you own any shares, and if not do you plan to invest? I am of the opinion that the TV market they are about to enter ( if you believe the rumours ) will be their toughest yet and could be the stick that breaks the camels back?

[meencegic]

I am of the opinion that the TV market they are about to enter ( if you believe the rumours ) will be their toughest yet and could be the stick that breaks the camels back?

Is it?

Do TVs have shitty, shitty, shitty UIs?

Do most TVs come set really awefull out of the factory? (the factory calibration on Apple displays is an often overlooked pro for them).

Do we love the cable mess around our TVs? How easy do you think it is to integrate all those functions into the TV?


The biggest risk is that there is no one to enforce greatness with no mercy anymore.

[TCjwwhcY]

Is it?

Do TVs have shitty, shitty, shitty UIs?

Do most TVs come set really awefull out of the factory? (the factory calibration on Apple displays is an often overlooked pro for them).

Do we love the cable mess around our TVs? How easy do you think it is to integrate all those functions into the TV?


The biggest risk is that there is no one to enforce greatness with no mercy anymore.

Its more about whether they can do all those things while making the same profit margins they are used to. It is the most competitive market they have entered yet, well established and TV's are already "smart" the question is if Apple can make them smarter while pricing it a point that their sales will follow.

I am not convinced that an Apple TV will ship at anything less than $2000 which puts it out of the mainstream market. Just because it is Apple this won't ensure stellar sales, price is very key to TV set sales. I never buy a TV on release, rather I wait til the Xmas sales, sure I am 6 months behind the curve but who cares as long it produces a good picture!

[JeorgeNoxeref]

I am wondering; do you own any shares, and if not do you plan to invest?

I do not own any shares and I do not plan to invest. But I said the same thing at $300, 100, etc.

[hictchewisa]

I have shares at $94, $125 and $170... but not a lot really. It IS always nice to see the 600% increase in value on Mint.com though. It makes everything else in my portfolio look shitty.

Aaanyway. If Apple were not a tech company, say shipping oil or making shoes, with all of their financials exactly as they are now, then the valuation would be low by any objective measure. What makes Apple a little awkward to value, is that almost of their revenue comes from things that have an average shelf life of 2 years. Given Apple's virtually perfect record of hits in the last 8 years (pretty much everything aside from the G4 cube), it would only take ONE flop for the illusion to be broken and confidence to be shattered, resulting in a significant share price drop. With a just announced modest dividend, that would hurt a lot of investors.

Now in reality, Apple's pole position is going to be very hard for anyone to at into. Their supply chain is just phenomenal, it's telling that none of the tablets being released really compare on price (Kindle Fire is an exception, being sold at a loss), which means they can probably maintain their margins in the current lineup of products. The question is, what is the next killer product, and will Apple be the one to bring it to market... or will Google (google glasses) or perhaps even Facebook or some smaller player? As Inept mentioned, it's really down to whether or not they can keep inventing and keep growing.