The Apple Case

We all know the most valuable Company in the world, it produces mobile phones, PCs, MP3 players and Tablets. All these products were not invented by Apple but the Company did apply a good portion of design-oriented innovation, making already good products cool and leading to people get desperate to have them as soon as they are out in the Market.

Apple took the personal computer and incorporated the CPU in colorful monitors to get the Imac, improved the MP3 players by adding storage capacity, rechargeable batteries and better music browsing, took the Tablet (already introduced by Bill Gates in 2001) off the Prototype level and got the Ipad, Smartphones already using Windows Mobile (HTC phones) were improved with better design and more user friendly software to get the Iphone. All of these reconverted products sold out immediately.

On the fundamental side Apple might be the best company in the world. No debt, plenty of cash, revenues growing at high rates, etc. The one problem I see is the quality of competition Apple has to face these days. It’s nothing like back in 2007 when Iphone was miles away in design and software. Today Samsung and Google are working together and putting very good products out there. People seem already willing to switch Iphones for Samsung Galaxies, for example. And that fact is shown by the growing market share android has.

Still I think the stock is way undervalued. With a 12% discount rate and a 15% growing rate for the near future I get the stock is worth this:

AAPL fair value

Apple is worth around 670. It could reach 700 back since it has already been there and the PE would only be 16 but I don’t see much more than that and the reason is the fierce competition that is looming and that Apple didn’t have to face back in 2007-2010 era.

If you are willing to suffer from the ups and downs of the stock, I see a bullish scenario with a perfect double bottom at 505:

AAPL dec15

Apple could reach 670 at the end of January, specially if it shows good results in the earnings season. The risk reward is very favourable at this levels, but be careful with short-term options.


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