Thursday, December 3, 2009

2 and 4, the most important numbers when looking at Apple. (AAPL)

As in, Apple only has a 2% market share in phones and a 4% market share in PC's.  That's a large part of Jesup & Lamont's reason for initiating coverage with a Buy rating this morning, with a super-fancy $240 price target.

A friend asked what I thought of Apple shares the other day; he thought they might be expensive and wanted my opinion.  As usual with this company, I said that you need to remember to "net out" Apple's enormous cash stash when looking at it on a valuation basis.  The thing is, that argument made MUCH more sense a hundred dollars ago, when the cash balance was a higher % of the total share price:

With the stock around $200 and cash at $26 per share, Apple still trades at a modest forward Price-to-Earnings of 19.  I say "modest," because I find that PE to be reasonable for a truly iconic brand that operates near perfection.

As far as this stock has run, I'd say there's plenty more potential upside.  That 4% PC market share is set to grow over the long-term, as Apple is not only increasing the quality of their offerings, but they're becoming more competitive on price.  Free Cash Flow Yield(FCFY) is about 5.4% right now, after netting out cash from the company's market value.  While not a "juicy" yield, it's better than other rapidly growing firms offer.  Apple will likely continue surprising to the upside, making these Free Cash Flow estimates conservative.  Add in the potential from new products, such as a new tablet reader that is rumored to be "shockingly" inexpensive, and there could be years of outperformance (vs the market) in Apple shares.

Copyright 2009 AlphaNinja


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