Here I am going to update my valuation of Apple Inc., the manufacturer or personal computers, mobile phones, tablets, watches, musical players and provider of various services - Macs, iPhones, iPads, app store applications etc..
Currently Apple Inc. is valued at 1.17 trillion USD. Year to date Apple is down approximately 11%. Is Apple Inc. fairly valued? No. I think Apple is significantly overpriced. As far as I am concerned, Apple's intrinsic value is around 750 billion USD or 36% below its current valuations. My estimate of 750 billion USD valuation reflects a price for Apple's stock of 172 USD, a 36% discount from Apple's current stock price of 268 USD.
Why do I think Apple is worth around 750 billion USD instead of its current market capitalization of 1.17 trillion. Simply because Apple is not an island. The global economy is in a lockdown. People are getting furloughed, out of jobs. People are rationing their financial means so they can have food and healthcare. Very few people are thinking of buying a new iPhone or iPad. Apple is still making around 60% of its revenue from iPhone sales. If we count the sales of Mac and iPads Apple's revenue from hardware exceeds 80%.
People are simply not thinking now of buying mobile phones, personal computers and tablets, much less Apple's products of Macs, iPhones, iPads which are expensive and in the most premium segment. Yes, Apple's services revenue could see an increase due to people staying at home and using mobile applications. But services still amount to not more than 17% of Apple's revenue and they cannot at present offset the large decline in hardware revenue Apple is most probably experiencing. I say most probably because Apple is yet to report its first quarter 2020 results. What is more, Apple's supply chain, which is based mainly in Asia is bound to have felt disruptions since Asia was until recently the epicenter of the coronavirus crisis.
As Apple's revenue is bound to decline, its profits will also fall. Apple is currently trading at a forward Price/Earnings ratio of 21. I estimate Apple's forward Price/Earnings ratio is grossly overestimated. The real number is more like 10 to 12. That would explain my forecast that Apple is worth not more than 750 billion USD in the current environment of economic woes due to the coronavirus disease COVID-19.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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