Is Apple (AAPL) Starting To Look Expensive After Recent Share Price Weakness?

• If you are wondering whether Apple at around US$248 per share is still a fair deal or starting to look stretched, you are not alone.
• The stock is down 3.8% over the last week and 8.8% over the last month, although it is still up 11.5% over the past year and 75.1% over three years, with a 5 year return of 86.1%.
• Recent headlines around Apple have continued to focus on its position as a major US tech company, with recurring attention on its products, ecosystem and role in global equity indices. These stories often shape how investors think about long term growth potential and risk, which can help explain shifts in sentiment around the share price.
• Simply Wall St currently gives Apple a valuation score of 1 out of 6, based on how many of its checks indicate the stock may be undervalued. Next, we will look at what different valuation approaches say about that score and then finish with a broader way to think about value that goes beyond the usual ratios and models.

Apple scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Apple Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects a company’s future cash flows and then discounts them back to today’s value, to estimate what the business might be worth per share right now.

For Apple, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month Free Cash Flow is about US$99.9b. Analyst inputs and Simply Wall St extrapolations then project Apple’s Free Cash Flow out to 2035, reaching US$229.2b in 2035, with US$184.1b in 2030. All of these figures are in US$ and are discounted back to today using the model’s required return assumptions.

Putting those discounted cash flows together, the model arrives at an estimated intrinsic value of about US$225.84 per share. Compared with a current share price of around US$248, the implied premium is roughly 10%, which suggests Apple is screening as slightly overvalued on this DCF view.

Result: OVERVALUED

Apple is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Apple.

Approach 2: Apple Price vs Earnings (P/E)

For profitable companies like Apple, the P/E ratio is a common way investors gauge what they are paying for each dollar of earnings. It helps you compare the price of the stock with the earnings the business is currently generating.

What counts as a “normal” P/E depends a lot on growth expectations and risk. Higher expected earnings growth or lower perceived risk can justify paying a higher multiple, while lower growth or higher risk usually points to a lower P/E being more reasonable.

Apple currently trades on a P/E of 32.6x. That sits above the Tech industry average of about 22.5x and slightly above its peer average of 31.7x. Simply Wall St’s Fair Ratio for Apple is 37.2x, which is a proprietary estimate of the P/E investors might typically expect given factors like Apple’s earnings growth profile, profit margins, industry, market capitalization and risk profile.

The Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for those company specific features rather than assuming all Tech stocks deserve similar multiples. With Apple’s actual P/E of 32.6x below the Fair Ratio of 37.2x, the stock is screening as undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1428 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Apple Narrative

Earlier we mentioned that there is an even better way to understand value, so let us introduce you to Narratives. Narratives connect the story you believe about a company with the financial forecast behind it and the fair value that follows from that view.

A Narrative on Simply Wall St is your story for a company like Apple. You set your own assumptions for fair value and for future revenue, earnings and margins, instead of only relying on one model or one set of forecasts.

The key idea is that a Narrative links three pieces together: your view of Apple’s business story, a matching financial forecast, and the resulting estimate of fair value that you can compare directly with today’s share price to help you decide whether you prefer to buy, hold, or sell.

On Simply Wall St’s Community page, which is used by millions of investors, Narratives are easy to set up. They update automatically when new information such as news or earnings is added, and they can show very different fair values for Apple. For example, one investor might see US$220 per share as fair while another might see US$280.

Do you think there's more to the story for Apple? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com