It is best to avoid "old saws" when making investment decisions around Apple. I think the stock is even less predictable with the influx of new-to-Apple investors, but, of course, I am really bullish. I increased my position in March and expect to hold at least until Apple achieves more realistic marketshare in computers, that is, double digits. The iPod, the iPhone-- all that-- don't forget-- is all about getting more people into the stores to buy COMPUTERS.
How do you have a target of $112 when it's trading at $114 right now?
I think Apple has been valued more on a cash basis than earnings for some time. Given this hypothesis, I do not think Apple investors will miss the fact that CASH from the iPhone and AppleTV sales are being realized at time of purchase (and going into the conpany coffers). Doesn't really matter if they are accounting realizing the revenue over a longer period of time. Apple continues to be a strong cash generating and managed company. (check out Apple's EBITDA margin vs. other computer companies, think a strong argument for why Apple continues to have stock upside)
Looks to me like the average analyst estimate for fiscal 2007 is $3.50. So a PE of 30 would yield $105 and assumedly we'd then add $14.50/share to reflect the cash. So why not $120?
Personally, I think a 30 PE for estimated 2008 (~$4) would make sense as a target. That gives us $120 + $14.50 or $134.50.
Personally, I think that AAPL deserves some PE expansion and that a year for now we'll be looking at a PE of 40...which would put us closer to $175. And I'm not convinced that the 2008 earnings won't be more than the current $4 estimates.
reinharden
I appreciate hearing from everyone what you use as your metrics. It's great to hear the diversity of views and valuations out there.
As you may have figured out, I'm use pretty conservative valuations for stock prices. I don't use FY2008 earnings for this year's prices, for example. I also assume that the "appropriate" P/E ratio takes into account cash on the books, so I don't value that separately, although clearly everyone has to adjust their thinking as the deferred revenue adds up.
The $112 target is a simple P/E of 30 times my estimated FY07 earnings of $3.25. You can see the full analysis at http://blackfriarsinc.com/A07Q2B...Web/page-
4.html . With that as a target, I see WWDC creating quite a bit of overvaluation in the short term, setting the stock up for a correction back down to $112. And in fact, we saw that just yesterday -- Apple's opening today at $110.69, indicating that the $112 number isn't such a bad target.
Overall, I use earnings-based targets to know whether we're seeing hype or reality in stock. I'm as happy as anyone when the stock goes up, but if it's not supported by earnings, you know it's going to come down again, you just don't know when. Others use different techniques, but this one works for me.
At the end of the day, for every trade, there's both a buyer and a seller holding different opinions on the stock. The methodology you use doesn't matter as much as actually having a discipline for knowing which side of the trade you want to be on. Sharing different methods and rationale's makes us all smarter, and probably will help us all do better long term.
Carl
Interesting that a million phones in one month wouldn't contribute much to the bottom line since it's spread over 24 months. But I think the iPhone, like the iPod, will bring in many new customers for Apple's computers.
Commenting by HaloScan
