ANALYSIS:
In using reverse valuation by a
discounted cash flow model with a price level of $185 as the base
with Apple Inc (NASDAQ:AAPL), at the
current price, Apple should grow its earnings by 37% annually for
the next 10 years with terminal growth of 3%.
Now, the question of course is, can
Apple grow by 37% annually?
With high probability, we feel it
is not possible. In the technology business, continuous successful
innovation is the life blood. Apple is all about a vision to
innovate for a common man's life. It is all about fulfilling
collective people's dreams. So here, the key managerial person is
the entire heart and soul of this operation. And here, that
is in question.
With these points in mind, we
strongly believe that this business can't grow as much as the
market hopes it will grow. Having said that, we cannot predict Mr.
Market's manic behavior. He could go on with a higher valuation for
Apple Inc (see Amazon). But based on fundamentals, the current
price of $200 and above is not justifiable. Hence, if anything, I
would go short on Apple.
Click here to see our free report on AAPL and
Click here for our detailed valuation
model.
