A friend of mine recently posed a question about Apple Inc. (AAPL) that I’ve heard more than once lately: When is Apple stock priced “right”? After all, the company and AAPL shares have been all over the map recently, so it has been tough to handicap.
As is the case (far) more often than not, there’s more than one plausible answer. Ergo, there is no hard-and-fast number that you could cite with any real degree of confidence.
As is also so often the case when determining an attractive buying point or target price for a stock, though, there is a truth somewhere in the middle.
On that note, here’s a closer look at three models that could meaningfully determine where Apple stock should arguably be priced.
Peer-Based Model
It’s not a perfect means of determining the “right” Apple stock price, as no two companies are perfectly comparable. But, it’s not a bad way of looking at it — how does AAPL stack up against its peers on a trailing and forward-looking price-to-earnings basis?
In the interest of disclosure, those peers were cherry picked by yours truly, and limited to the four most relevant names. Still, that should be enough of a sample size to make a meaningful comparison.
As they say, read ’em and weep (and I’ll warn you now the comparisons’ numbers are all over the place, so take this particular model with a big grain of salt).
Based on trailing numbers, some could argue that AAPL shares are worth exactly twice their current value of $96.50, or $193 each. That’s a tough assumption to get behind, however, as we know the trailing P/E measures for Alphabet Inc (GOOG, GOOGL) and Microsoft Corporation (MSFT) are uncharacteristically high due to temporary circumstances. Conversely, while the trailing P/E for HP Inc (HPQ) is mathematically correct (as is the forward-looking one), the market is overly-discounting HP’s operation.
As for the forward-looking valuation multiples, we can again throw out the HP numbers, and we don’t have one for Samsung (SSNLF). However, I do feel the Microsoft and Alphabet forward-looking figures between 17 and 18 are reasonable comparisons. In those terms, Apple stock is worth $171.
All the same, this is arguably the weakest means of coming up with a target price.
History-Based Model
A better model for determining what Apple stock is actually worth may be a comparison to itself. That is, where have Apple shares traded in the past relative to its earnings?
The answer depends on how far back you want to look. The average trailing P/E for the past ten years is 20.7. That includes the encouraging-but-not-wildly profitable phase between 2004 and 2007; the first iPhone wasn’t launched until 2007. For the past five years, though — which I would argue is the more relevant period — the average trailing P/E is 13.5. By that line of reasoning, one could argue the price of Apple stock should be worth $136 per share, or 40% above where it’s trading now.
On a forward-looking basis, the P/E has averaged 11.4 over the course of the past five years. This would imply AAPL stock is worth $114 per share.
Just bear in mind that Apple has beaten earnings estimates more often than not.
Technical-Based Model
Last but certainly not least, the chart itself says the Apple stock price could be worth as much as $133 per share on the high side, though the same chart suggests there’s something about the $104 mark nobody can afford to ignore.
This method of figuring out the right Apple stock price is easily the most contentious; “serious investors” have been told time and time again a chart’s history can’t predict it’s future. I don’t entirely disagree.
But if you look at a chart like it’s a crystal ball, then you’re looking at technical analysis in the wrong light. A chart is simply a log of investors’ ever-changing opinion of a company’s fundamentals and prospects, and the fact of the matter is, people and their opinions can be quite predictable.
With that as the backdrop, investors pretty much tipped their hand in 2015 when Apple stock tested the $133 level four times, and was unable to clear that ceiling once.
Now that the precedent has been set, it’s going to be tough to crack that ceiling in the future. All the same, odds are good the bulls will at least test that price again.
The other lines on the chart are Fibonacci retracement lines, only plotted to illustrate how the $104 mark has been psychological turbulence, and could be again.
What Is the “Right” Apple Stock Price?
Bear in mind none of these price targets mean a thing if Apple isn’t really going to earn the expected $9.08 per share this fiscal year, and there’s the real rub — can Apple actually do what it’s expected to do? If not, then this has all been for naught and we may as well throw darts while wearing a blindfold.
Well, there’s some good news on that front … Apple has been more apt to top estimates than not. That $9.08 figure is probably a reasonable guess as to the company’s per-share income for the current fiscal year ending in September. The total ramps up to $10.01 per share for the following fiscal year.
So what is the “right” Apple stock price?
The average of all the prices justified above is $149.40. Interestingly (though not surprisingly), that’s pretty close to the current average analyst target of $135.92.
Whichever target you fancy, all of them are above where the stock’s trading now.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
