Is Apple (AAPL) Fairly Priced After Recent Share Price Pullback?
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If you are wondering whether Apple’s current share price lines up with its long term appeal, you are not alone. This article is designed to help you connect the story you know with the numbers the market is using.
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Apple shares last closed at US$259.48, with returns of 4.6% over the past week, a 4.3% decline over the past month, a 4.3% decline year to date, and gains of 10.4%, 70.5% and 94.6% over the last 1, 3 and 5 years respectively.
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These moves have played out against a steady stream of product news, ecosystem updates and broader tech sector headlines that can quickly shift how investors think about potential growth and risk. For long term holders and new investors alike, separating short term news flow from what is actually baked into the price is key to judging whether the current level still makes sense.
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On Simply Wall St’s 6 point valuation framework, Apple currently scores 1 out of 6, which suggests only one of the checks screens as undervalued. Next we will walk through how different valuation approaches line up on Apple today and then finish with a way to think about value that goes beyond any single model.
Apple scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow, or DCF, model takes the cash Apple is expected to generate in the future and discounts those amounts back to what they are worth today. It is essentially asking what a rational buyer might pay today for all those future cash flows in one lump sum.
Apple’s latest twelve month free cash flow is about US$124.1b. Using a 2 stage Free Cash Flow to Equity model, analysts provide explicit forecasts out to 2030, with projected free cash flow of US$193.0b in that year. Beyond the first few years, Simply Wall St extends the trajectory using its own assumptions to create a full 10 year stream of cash flows in US$.
When all of those projected cash flows are discounted back to today, the model arrives at an intrinsic value of US$237.57 per share. Compared with the recent share price of US$259.48, this implies Apple trades at roughly a 9.2% premium to the DCF estimate, so the stock screens as slightly overvalued on this model.
Result: ABOUT RIGHT
Apple is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment’s notice. Track the value in your watchlist or portfolio and be alerted on when to act.
For a profitable company like Apple, the P/E ratio is a common way to gauge how much investors are currently paying for each dollar of earnings. It ties the share price directly to the bottom line, which is usually where long term value is built.
What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth prospects and risk profile. Higher growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually points to a lower one.
Apple’s current P/E is 32.34x, compared with the Tech industry average of about 21.64x and a peer average of 30.42x. Simply Wall St also calculates a Fair Ratio of 37.91x for Apple. This Fair Ratio is a proprietary estimate of what Apple’s P/E might be given factors such as its earnings growth profile, industry, profit margins, market cap and specific risks.
Because the Fair Ratio blends these company specific drivers, it can give a more tailored view than simple comparisons with sector averages or peers. With Apple’s actual P/E at 32.34x versus a Fair Ratio of 37.91x, the shares screen as undervalued on this metric.
Result: UNDERVALUED
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1421 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Apple’s story with the numbers behind its fair value.
A Narrative is your own story for a company, where you spell out what you think happens to future revenue, earnings and margins, then link that to a clear fair value that you can compare with today’s price.
On Simply Wall St, Narratives live in the Community page and are used by many investors. This gives you an accessible tool that turns your expectations into a financial forecast and then into a fair value that updates when new earnings, product news or other information is added to the platform.
For Apple, one investor might build a Narrative that assumes relatively modest revenue growth and stable margins. Another might assume much faster growth and higher margins. This can lead to a wider range of fair values that each investor can set against the current share price to help decide how they want to position the stock in their portfolio.
Do you think there’s more to the story for Apple? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include AAPL.
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