Apple Inc. (AAPL)

Conclusion

Apple Inc. designs, manufactures and sells smartphones, personal computers, tablets, wearables and accessories, and it operates the App Store and a range of subscription services. At 342.37 USD per share, the market capitalisation is 4.997 trillion USD.

The verdict is overvalued. The P/E of 37.8 stands against a ten-year median of 27.7, a premium of 36.3%, and EV/EBITDA of 31.3 stands against a median of 21.8, a premium of 43.4%. The discounted cash flow gives 150.97 USD per share. The fair value band runs from 159.56 to 239.33 USD with a midpoint of 199.45 USD, giving a margin of safety of -41.8% at the current price. The reverse DCF implies growth of 17.9% a year, while revenue grew 5.5% a year over five years and EPS grew 9.9%.

Several numbers support the case: net cash, with net debt to EBITDA of -0.35, a ROIC of 228.7% against a WACC of 10.2%, and free cash flow conversion of 1.03 over the last twelve months. The weakest numbers are the valuation premiums, led by a price-to-sales premium of 50.6%, the implied growth of 17.9% against delivered revenue growth of 5.5%, and thin liquidity, with a current ratio of 1.02 and a quick ratio of 0.59.

Financial health

Financial strength is green, held up by the net cash position and the Altman Z-score, and no measure is assessed as bad. Net debt to EBITDA is -0.35 and debt to equity is 0.02. The current ratio of 1.02 and quick ratio of 0.59 are adequate but leave a thin cushion. The company does not report its interest expense, so interest coverage is not available. The Altman Z-score is 12.78, in the safe zone, though the model was designed mainly for manufacturers and Apple is only partly one. Insolvency risk is low, about 0.12% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green, supported by cash conversion, buybacks and a clean record of reported results. Free cash flow conversion is 1.03 over the last twelve months and 1.04 over five years. The accrual ratio is -0.034. Stock-based compensation is 2.9% of revenue, and free cash flow after it is 122.27 billion USD. The share count fell at a compound rate of 2.7% over five years, which reflects buybacks. The Piotroski score is 8 of 8. The Beneish M-score is not available. Apple beat earnings estimates in all eight of the last quarters, with an average surprise of 5.2%. The next-year EPS growth estimate is 8.1%, and the 90-day change in that estimate is -0.3%.

Profitability

Profitability is green. Every margin sits above its ten-year median: gross margin is 48.8% against 42.5%, operating margin 33.0% against 29.8%, and net margin 27.6% against 24.6%. The margin stability figure is 0.1025. Return on invested capital is 228.7% against a WACC of 10.2%, and the given ROIC minus WACC value is 218.5%. The five-year median ROIC is 84.3%. The return on equity of 117.9% is inflated by leverage. The DuPont split shows a net margin of 27.6%, an asset turnover of 1.18x and an equity multiplier of 3.61x, so ROIC is the more reliable measure of returns.

Growth

Growth is green, with steady expansion across the periods. Revenue compounded at 7.7% over three years, 5.5% over five years and 8.3% over ten years. EPS compounded at 13.5%, 9.9% and 15.8% over the same periods. Revenue grew in 8 of the 10 comparable years. The growth rate is solid but moderate over five years, which is what the valuation has to be measured against.

Valuation

Valuation is red. Today's multiples sit above their ten-year medians: P/E of 37.8 against 27.7 (premium 36.3%), EV/EBITDA of 31.3 against 21.8 (premium 43.4%), P/FCF of 36.7 against 26.6 (premium 38.1%), P/S of 10.4 against 6.9 (premium 50.6%) and P/B of 44.6 against 42.2 (premium 5.5%). The DCF gives 150.97 USD per share, using a discount rate of 10.2%, near-term growth of 8.1% and terminal growth of 2.5%. The fair value from historical multiples is 247.92 USD. The fair value is an order of magnitude built on fixed assumptions, not a price target. The reverse DCF implies growth of 17.9%, with a gap of 12.4% to five-year revenue growth as given. The dividend yield is 0.31% and the payout is 11.6% of free cash flow.

Risks

The main risk is that growth falls short of what the price implies. The reverse DCF requires 17.9% a year, while five-year revenue growth was 5.5%, so a shortfall would leave the price above the fair value band. Thin liquidity, with a current ratio of 1.02 and a quick ratio of 0.59, offers limited room if cash needs rise. The interest coverage figure is not available because the company does not report its interest expense, and the cost of debt used is assumed rather than observed. The Beneish M-score is not available. The analysis has no debt maturity schedule and no revenue breakdown by segment, so it cannot test refinancing needs or the mix of growth across product lines.