The Motley Fool has posted an analysis of Appleis stock in the form of a report from one of their readers. The Angry Ferret offers a fairly comprehensive look at Appleis current position that includes how the stock fell from US$75 to US$15 (note that Apple is currently trading at US$19-US$20), and how the future looks for the company. The Angry Ferret is not a Wall Street analyst, and this report will carry little or no weight, but it is solid nonetheless. His overall recommendation rates Apple a Buy. From the report:
As mentioned above, Apple currently holds $12 per share in cash. Although it would be best for shareholders that this capital be invested in a higher return than treasuries, it creates interesting opportunities for growth, and ensures Apple should be able to withstand a few quarters of unprofitability. Such opportunities could mean acquisitions or a share buyback.
One such opportunity is the Apple Store. Apple is currently developing its first proprietary store, much like a Gateway country store in Silicon Valley. Operating its own stores brings on additional risks for Apple, but does help in some areas. An Apple store creates a more unique buying experience for consumers, making it more likely for them to come back next time they upgrade. The stores are beneficial as they carry a higher margin of product sales, as sales are direct and discounts offered to retailers are retained. However, there are additional overhead costs that offset these benefits.
Appleis large cash balance and working capital efficiency create a low cost of capital. This is confirmed by cost of capital estimates made by Stern, Stewart Consulting in their annual MVA survey. By achieving a low cost of capital, Apple is able to set the bar lower to create shareholder value, as it is the spread between the weighted average cost of capital and the cost of capital and how this spread is exploited that creates value.
With its large cash balance of $12 per share, and book value of $13 per share, and given its financial strength, there is minimal downside in this stock. On an enterprise value multiple basis, Apple is an extremely compelling value opportunity with a very positive risk/reward ratio given the limited downside.
Based on an EVA valuation model (Appendix A), the shares appear undervalued. Using the EVA model based on financial statement projections over the next 10 years with a steady-state period following ad infinitum, a value of over $33 was estimated. This represents a potential upside of over 50% from current price levels.
There is a lot more information in the full article, and we recommend it. As of press time, Apple is trading down at 19, a loss of 1 1/16 (-5.30%) in the midst of a tech downturn.
For other stories regarding Appleis stock activity, visit our updated Apple Stock Watch Special Report. You can also check out our Apple Financial Boards, a new moderated forum for Apple Investors and people who are interested in Appleis financial dealings.