Sunday, January 20, 2019

Apple may be a bargain



Apple may be a bargain worth looking in to. Understanding a business (products, services, and economics) and the durability of its competitive advantages is most important. AAPL has recently produced a net profit margin of 22.46 and a debt/equity ratio of 1.07
Here is a valuation estimate of AAPL with an assumed (more conservative) growth rate of 11 percent, performed on: 1/20/2019 by Bud Labitan at www.frips.com
Is AAPL an intelligent investment or intelligent speculation today?
1. Understand the economics of this business?
2. Sustainable Competitive Advantages?
3. Able and Trustworthy Managers? Current Net Profit Margin = 22.46 % Current Debt/Equity ratio = 1.07
4. Margin of Safety from a bargain price?
Starting with an estimate of annual Free Cash Flow of approximately $57,000,000,000 dollars and the number of shares outstanding at 4,745,398,000 shares; I used an assumed FCF annual growth of 11 percent for the first 10 years and assume zero growth from years 11 to 15.
WARNING: This is 2-stage DCF (Discounted Cash Flow model) is just one of many models you may wish to use. Also, you may wish to contract or expand the length of cash flow streams, depending on the quality of the business. For example, a great business with a Moat (sustainable competitive advantage) could be modeled with a longer tail period. Review the Free Cash Flows model here:
$63,270,000,000.
$70,229,700,000.
$77,954,967,000.
$86,530,013,370.
$96,048,314,840.7
$106,613,629,473.18
$118,341,128,715.23
$131,358,652,873.91
$145,808,104,690.04
$161,846,996,205.94
$161,846,996,205.94
$161,846,996,205.94
$161,846,996,205.94
$161,846,996,205.94
$161,846,996,205.94
Sum of these cash flows = $1,803,966,488,198.7
Then, I used the NPV formula to reveal a Net Present Value of: $1,100,052,588,887.07 using a discount rate of 6.25% I used this discount rate because it represents my average cost of capital. Your cost of capital may differ. Then, I divided the net present value figure $1,100,052,588,887.07 by the number 4,745,398,000 shares outstanding. The resulting estimated intrinsic value is approximately $231.81 per share.
Market Price = $156.82 Intrinsic Value = $231.81 (estimated)
Price To Value (P/V) ratio = .68 and the estimated bargain = 32.35 percent.