Valuation analysis for Apple Inc. (NASDAQ:AAPL)

When large companies grow at fast rates analysts naturally question the sustainability of that growth, but sometimes when there does not look like there is anything better in town the natural concerns become discounted.  In environments like that it is important to understand air value.

AAPL Apple EPS Earnings Growth

Apple Inc. (NASDAQ:AAPL) is a stock that has experienced great runs, surprising falls, and then significant recovery, and over the past few years investors have been on a roller coaster ride, but most of them are still in love with the company and the products.  Our history with the stock is mixed, at times we have bought it, at times we have shorted it, and at times we have been stopped out of trades, but over time we have remained objective and in this evaluation of Apple we continue to be objective.

Our analysis of Apple seeks to determine fair value given its earnings growth rate and according to our analysis of earnings growth the company has been growing at about 11.63% on a yearly basis.  Our yearly growth rate analysis excludes onetime events to focus on earnings from operations, and then we compare trailing 12 month data on a year over year basis to determine yearly growth.  For a company of Apple size, a growth rate of 11.63% is solid.

Interestingly, from 2013, when earnings were more questionable, the stock has also experienced a significant run and although that can partly be attributable to better earnings it is also attributable to multiple expansion.  The PE multiple at Apple did not remain constant at around 10 times earnings while earnings increased, but instead the multiple increased from around 10 times earnings to almost 17 times earnings, where it is today.  That is a significant multiple expansion.

AAPL Apple PE Price Earnings Multiple

Clearly, given that multiple expansion investors are expecting good things from Apple going forward as well, but when we look at valuation and consider fair valuation it is important for us to look at a direct comparison between earnings growth and the PE multiple.  That is found in the peg ratio, and our analysis uses the same yearly earnings data to define the peg ratio for Apple overtime.  Given the relationship between earnings growth and the PE multiple our analysis shows us that the peg ratio for Apple is 1.45.  Translated, that means that Apple is fairly valued according to our observations, and if the company manages to grow earnings had a consistent rate it may even be considered to be slightly undervalued.

Therein lays the question.  We'll Apple continue to grow earnings at over 11% a year?

Technical take:

According to our real time trading report for Apple the stock is in a longer-term upward sloping channel, it has been backing and filling, but doing so while moving higher on a relatively consistent path.  Thus far, the stock has pressed higher but the resistance line of our longer-term observations has as well.  The stock currently appears to be in the process of increasing towards resistance again, but because resistance levels are increasing on a daily basis given the upward sloping nature of the channel we find resistance to be less of an important indicator than upward sloping support.  If Apple remains above support we would expect it to continue to increase within its established longer term channel, but if it breaks below support as we have defined that in our real time trading report we would expect the stock to start to falter.


Although earnings growth has been solid much of the increase in Apple's stock has been directly related to multiple expansion.  Multiple expansion of some degree was warranted given the increase in earnings growth, but questions exist about the ongoing growth rate of a company of the size of Apple.  Immediately, the stock does not seem to suggest that it will stall any time soon.  The stock continues to trade in an upward sloping channel, resistance lines continue to increase, and the stock has not broken support.  If the stock does break support we would consider that a sell signal, it could even be a short signal, but right now there's no sell or short signal in Apple and it seems poised to continue to increase within its established channel for the time being.