Apple at $665 per share – or $705 – or $1077

by L J Furman, MBA on February 22, 2013

in Alpha, Apple, Finance, Value Investing

space-apple-logo

Apple, if it can be compared to Google, IBM, Intel, Microsoft, and Oracle, should be priced at 665 per share. This analysis is simply based on Stock Price, Earnings per Share (EPS) and the Price Earnings ratio. or P/E. The average P/E of these companies is 15.08. If Apple’s stock was 15.08 times earnings, it would be 665. If you take Apple out of the mix, the average P/E becomes 16.01. At 16.01 times earnings, Apple’s stock price would be 705. And if priced like Google, $1077.

 (Note that I am assuming that we can compare Apple to Google, HP, IBM, Intel, Microsoft and Oracle. This may not be a valid assumption, but an analysis of each of these company’s market niche and the validity of comparison is beyond the scope of this blog post)

Table 1, below, shows basic financial data, published on Google Finance, on February 15, 2013.  Apple has a high share price, but also high earnings per share, and consequently, a low price earnings ratio. HP, with losses of 6.45 per share does not have an “Earnings per Share.”

Basic Financial Data
Item Stock Price Mkt Cap EPS P/E
1 AAPL 460 432 44.1 10.44
2 GOOG 793 261 32.5 24.42
3 HPQ 17 33 -6.45 Undef
4 IBM 201 227 14.41 13.95
5 INTC 21 105 2.13 9.9
6 MSFT 28 235 1.82 15.36
7 ORCL 35 165 2.12 16.42
Table 1: Basic Data, 2/15/13

As shown in Table 2, Apple also has high return on average earnings and a Debt to Asset ratio of 0 – no debt.

Critical Financial Ratios
Item Stock P/E Debt to A RoAA
1 AAPL 10.44 0 28.5
2 GOOG 24.42 5.9 12.97
3 HPQ Undef 26.14 -10.62
4 IBM 13.95 27.91 14.09
5 INTC 9.9 15.94 14.16
6 MSFT 15.36 9.85 14.77
7 ORCL 16.42 21.03 13.14
Table 2: Ratios, 2/15/13

I pulled Hewlett Packard out of the data set because it is currently operating at a loss, and then calculated the mean P/E of Apple, Google, IBM, Intel, Microsoft and Oracle at 15.8. If this is a benchmark, then we can expect the stock in those companies with a P/E above 15.8 to correct in a negative direction, while those companies whose P/E is lower than 15.8 to correct in a positive direction. Thus, I expect Apple to reach 665, an increase of 44.46%, Google to drop to 490, a decrease of 38%, etc. If Apple was priced at Google’s P/E, 24.42, then, assuming earnings of 44.1 per share, each share would be priced at $1,076.92.

Table 3 equalizes the data, calculating the number of shares per $1000, calculated by dividing the share price into $1000, and the Earnings per $1000, calculated by multiplying the Shares per $1000 by EPS. Thus, Apple earns $95.84 for every 2.17 shares, worth $1000 as of the close of trading, Friday, Feb. 15. Similarly, $1000 would buy 1.26 shares of Google, which earns $40.99. It would buy 4.98 shares of IBM, which earn $71.70.

 

Earnings per $1000
Item Stock Price Shares/$K E/$K
1 AAPL 460 2.17 95.84
2 GOOG 793 1.26 40.99
3 HPQ 17 59.56 -384.16
4 IBM 201 4.98 71.70
5 INTC 21 47.37 100.90
6 MSFT 28 35.7 64.98
7 ORCL 35 28.73 60.90
Table 3: E / $ K

While I might be good at it, I am not a licensed stock broker, investment adviser, financial planner, or money manager.

I hold a Bachelor’s in Biology and an MBA in “Managing for Sustainability” from Marlboro College. I can be reached at ‘L Furman 97” @ G Mail . com and US 732 .  580 . 0024.

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