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Apple Inc. Message Board

  • applesupertramp applesupertramp Apr 17, 2013 8:36 AM Flag

    Seeking Alpha: Apple valuation corrections needed

    If Apple has $44/share in earnings and no contraction and no growth, then present value of perpetuity at 10% discount is $440/share ex cash (44/.10=440). Adding in cash of 150/share we get $590/share (440+150=590).

    Plugging the numbers above into a DCF model will result in the same answer. Discounting at a lower rate will result in a higher price/share, and discounting at a higher rate will result in a lower price/share, but discounting at above 10% would be absurd. Why? Try holding every other major corporation to that standard and tell me the result.

    Even with a 12 or 13 % discount rate, Apple's valuation is $500/ share. 20% higher than where it presently sits. In fact, one would have to depress earnings to $28/share to equate to present market price, and even still, this would produce a return for an investor of 10% per annum. That is to say, if Apples earnings fell 36% but held steady from that level going forward, then an investor at current $420 price would still enjoy an average return on his/her investment of 10%.

    How do you like them Apples?

    I am Applesupertramp, and I am Steve

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