What is Apple Worth?

By Ryan Guenette - August 10, 2012 | Tickers: AAPL, DELL, GOOG, HPQ, MSFT | 0 Comments

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As of the market close on Thursday, August 9^th, 2012, one share of Apple Incorporated (NASDAQ: AAPL) is valued at $620.73, just $23.27 from all-time highs. Recently, intensive rumors have lingered around the subject of Apple entering the Dow-Jones Industrial Average, as after all, Apple is the largest company in the world. Yet the Dow Jones Industrial Average is a price-weighted index, meaning IBM has a greater effect on the index than Bank of America. So if Apple priced at $600 entered the Dow Jones, replacing a $20 Hewlett-Packard Company, the index would pop immediately. To enter the Dow Jones, Apple would have to split its stocks, most likely a 10 to 1 split, giving investors with one share of Apple at $600 a share, 10 shares of Apple at $60 a share. The value of the position would remain the same, and Apple would be entered in the Dow Jones industrial Average.

Apple has already rallied 53.27% year to date, and is one of the best performing stocks in the entire market over the past years, so why will this projected $62.07 stock be worth $80.00?

Rock-Solid Fundamentals

In 2009, Apple reported earnings per share of $6.29. In 2014, the average analyst consensus believes Apple Incorporated will derive $59.70 from its business operations. That represents an increase in earnings per share of 849.13% over just 5 short years. Based on these statistics, Apple Incorporated’s compound annual growth rate (CAGR) is 56.84%, an incredible feat. Despite this vast accomplishment, much of the growth occurs during the first half of the timeline, as Apple further matures into the future. Apple’s growth is truly incredible, no matter how one puts it. Another tremendous quality of Apple is that they now pay out dividends. Since Steve Jobs took control of the company, Apple has not paid out a dividend, yet now Tim Cook plans to further distinguish himself from the legendary founder. Apple plans to pay out an annual dividend of $10.60, which at current prices, puts Apple’s dividend as yielding 1.71%. While Apple’s dividend is not monumental, it outpaces both the ten year treasury, as well as inflation. All in all, Apple’s growth is expected to slow from its hyper-speed rate, but is still growing at a substantial pace, and is now expected to pay out a dividend.

The chart below displays Apple’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the foreseeable future.

Pipeline Packed With Innovative Products

Apple has a distinctive profile for being an innovative company that has brought revolutionary products to the marketplace, but as Steve Jobs passed, several people believed Apple’s reign as a trailblazer was over. Yet several incredible products are still in Apple’s pipelines, products sure to drive incredible growth in the future. Firstly, and most importantly, the long awaited arrival of the iPhone 5 is set to occur later this year. As the iPhone line now makes up the majority of Apple’s revenue, the success or failure of the smartphone the world has been waiting to get their hands on for two years will determine the financial status of this technology giant. Also in the pipeline is an answer to the smaller tablets that have undermined the iPad’s share of the tablet market, an iPad mini. The iPad mini responds to the Amazon Fire and Nexus 7, putting the far superior software and platform onto a more affordable platform. Many analysts have called Apple out on their development of the smaller tablet, as they believe it went against the beliefs of Steve Jobs; yet recent events have led to the uncovering of an e-mail stating that Jobs was not against the idea, but for it. Finally, Apple is expected to enter the television market, creating a more intelligent and innovative approach to the television. Apple’s pipeline will undeniably provide immense amounts of revenue for the company, as well as convincingly proves that Apple has not lost its innovative edge.

Industry Forerunner

Compared to some of Apple’s most prominent competitors, such as: Hewlett-Packard Company (NYSE: HPQ), Dell Incorporated (NASDAQ: DELL), Microsoft Corporation (NASDAQ: MSFT), and Google Incorporated (NASDAQ: GOOG), Apple compares relatively favorably.

In terms of growth, Apple leads the industry by a marginable rate, while Hewlett-Packard grows at a depressing rate. Hewlett-Packard possesses the largest dividend, yet Microsoft possesses the fastest growing dividend. In the fundamental ratio comparison, HP and Dell both appear to be trading at discounts, yet both have been labeled as “value traps” When growth is taken into account, Apple appears to be trading at a discount, while Microsoft appears a little pricy. In the net profit margin comparison, Google stands out to the upside, while HP stands out to the downside.

The Foolish Bottom Line

Apple has been growing at a pace that is unsustainable, but will continue to expand at a marginable rate. Apple has been king of the technology world for a long time, and when you’re on top, everyone wants to take you down a peg, but Apple should maintain its superior level well into the future as its pipeline is packed to the brim with innovative and revolutionary products that will be huge sources of revenues. Additionally, Apple is set to start paying out a dividend that matches the inflation rate. The foolish bottom line is that Apple will continue to innovate, grow its business at a substantial rate, and begin paying a dividend, making Apple’s stock worth $80, after the stock split. 

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