Is Apple Stock Overvalued?

by Trefis Team
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Apple’s (NASDAQ: AAPL) stock has seen a strong rally, rising by over 60% over the last 6 months, currently trading at levels of around $320 per share, driven by stronger-than-expected demand for the new iPhone 11 handsets, robust sales of services and other products such as AirPods and the Apple Watch. However, we believe that the company is slightly overvalued at these levels, given the significant expansion in Apple’s forward P/E multiple from levels of around 16x in FY’19 to about 23x, based on the current market price and also due to risks relating to the company’s Chinese business.  In this analysis, we break down the key factors driving our valuation for Apple.

Trefis has a price estimate of $280 per share for Apple stock, which reflects a downside of about 13% from the current market price as of February 12th.  You can view the Trefis interactive dashboard – Apple Valuation: Expensive or Cheap? – to understand the various factors driving a higher stock price estimate for Apple, and alter the key assumptions to arrive at your own price estimate for the company.

We arrive at the stock price estimate for Apple as:

Stock Price = Total Revenue x Net Income Margin ÷ Shares Outstanding x P/E Multiple

#1. Estimating Apple’s Total Revenues:

  • Total Revenue has increased from $229 billion in 2017 to $260 billion in 2019, driven by Apple’s services and other product sales, although iPhone revenues remained somewhat lackluster due to a mixed response to iPhone XS and XR.
  • We expect revenues to grow to $284 billion in 2020, as the iPhone division is also expected to return to growth this year, driven by strong demand for the new iPhone 11 series.

#2. Deriving Apple’s Net Income:

  • Net Income grew from $48.4 billion in 2017 to $55 billion in 2019, and we expect it to stand at around $61 billion in 2020.
  • We expect net margins to grow modestly from levels of around 21.2% in 2019 to 21.5% in 2020, driven by higher services sales and potentially lower components prices.

#3. Determining Apple’s EPS:

  • EPS has grown from $9.30 in 2017 to $12 in 2019, and we estimate it to be $13.90 in 2020.
  • The growth in EPS is driven primarily by Apple’s aggressive share repurchase program and its declining share count.

#4. Estimating Apple’s Share Price:

  • Our Price Estimate of $280 For Apple’s stock is based on our Detailed Valuation Model and implies a 20.2x P/E Multiple on expected 2020 EPS of $13.90.

To understand how Apple’s P/E multiple over the years stands in comparison to its major peers, view our interactive dashboard analysis Apple Valuation: Expensive or Cheap?.

See all Trefis Price Estimates and Download Trefis Data here

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