Apple Still Looks Like an Attractive Investment
Apple’s (AAPL) stock is down today, likely due to the market downturn and deflation of the hype balloon surronding the curiously named iPad. Investors, however, may be losing sight of what Apple is accomplishing even without the iPad.
Apple’s earnings announcement earlier in the week was truly amazing. Sure, results weren’t comparable to the previous year due to the accounting change, but I would argue that the current accounting method more accurately reflects what is going on with the business.
The company reported $15.7 billion in revenue for the quarter and had earnings of $3.4 billion. Other highlights include:
- 3.36 million Macs sold in the quarter, up 33% from the year-ago quarter
- 8.7 million iPhones sold, up 100% from the year ago quarter
- 21 million iPods sold, down 8% from the year ago quarter
- $5.8 billion in cash generated during the quarter
- Apple retail revenues grew 13% to $1.97 billion. They now have 283 stores in 10 countries.
With $3.67 in earnings this quarter and guidance of $2.06 to $2.18 for next quarter, it doesn’t look unreasonable for Apple to earn $9.50 per share this year. It also looks like they could have over $14 billion in cash flow after capital expenditures this year. With a price of $200 and a market capitalization of $181 billion, Apple is priced at about 21x forward earnings and 13x forward cash flow. These metrics all look pretty conservative for a company with Apple’s growth prospects and recent track record.
Assuming Apple generates $14 billion in cash flow after capital expenditures this year, grows at 15% for two years followed by 12% growth for two years, they could be earning over $23 billion in cash flow in five years. At 12x cash flow, the company could be worth $300 billion then. Discounting these cash flows back at 10% results in a value of $239 billion, or $260 per share.
Disclosure: I currently hold shares of Apple
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