Apple Inc. (NASDAQGS:AAPL) is currently trading at $115.75, at approximately 83.9% of its 52-week high of $137.98. With the stock price up 92.3% in the last year, investors are worried that the company is getting too expensive. So, is Apple Inc. overvalued? In this article, we’ll discuss Apple Inc.’s valuation using different valuation models.
One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.
Considering Apple Inc.’s latest twelve months revenue/share of $16.01 and using the company’s 5-year average price to sales of 3.58x as a benchmark, we have a fair value of $57.31, which is -50.5% lower than the current price.
With no surprise, we can see that Apple Inc.’s price to sales of 7.2x is much higher than its 5-year average of 3.6x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.
Absolute Valuation: Apple Inc. DCF Analysis
Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.
So, let’s analyze Apple Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 6.0%, an average EBITDA margin forecast of 28.4%, a discount rate of 8.5%, and a terminal EBITDA multiple of 17.6x, we get a fair value of $92.9.
So, Is Apple Inc. Overvalued?
Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.
The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.
According to the estimate, Apple Inc.’s fair value is $90.03, representing a -22.2% downside from the current price. Below are the fair value estimates for each model.
Company’s Profile: Apple Inc.
Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories.
It also provides digital content stores and streaming services; AppleCare support services; and iCloud, a cloud service, which stores music, photos, contacts, calendars, mail, documents, and others. In addition, the company offers various service, such as Apple Arcade, a game subscription service; Apple Card, a co-branded credit card; Apple News+, a subscription news and magazine service; and Apple Pay, a cashless payment service, as well as licenses its intellectual property, and provides other related services.
The company serves consumers, and small and mid-sized businesses; and the education, enterprise, and government markets. It sells and delivers third-party applications for its products through the App Store, Mac App Store, and Watch App Store.
The company also sells its products through its retail and online stores, and direct sales force; and third-party cellular network carriers, wholesalers, retailers, and resellers. Apple Inc. has a collaboration with Google to develop COVID-19 tracking system for Android and iOS devices. Apple Inc. was founded in 1977 and is headquartered in Cupertino, California.