Apple stock tumbled around 30% off its all-time high market on March 30, 2022 during the ongoing bear market. While it may be tempting to buy considering the decline in share price
Apple Stock Fair Value Calculations
My two fair value calculations indicate that further declines are likely. Additionally, both from a technical and macroeconomic perspective, further downward pressure looks highly probable.
To begin with, I prepared two valuation models to make a more accurate assessment of the company’s valuation. I chose a conservative approach due to the current monetary tightening phase of central banks globally and the related rising interest rate environment. Other factors that favor a conservative approach include the uncertain macroeconomic and political environment and the increasing risk of recession, which may not yet be fully priced in.
The first valuation method is based on a discounted cash flow (DCF) calculation. To choose a conservative approach, I selected a growth rate of 5% per year for free cash flow (FCF). Additionally, analysts’ consensus predicts an 8% decline in FCF in FY 2023 and 10% growth in FY 2024, according to MarketScreener. For the price-to-cash flow multiple, I selected a multiple of 10.40 for the last FCF, which represents the 5-year average of the years 2013-2017 and is approximately half of the current 5-year valuation of 19.28 (2018-2022), according to Morningstar.
Using the first valuation method based on DCF, the fair value for Apple comes out to $83.03, indicating that the Apple stock is currently overvalued by 36%.
The second valuation method is based on an earnings-per-share (EPS) calculation. Again, I selected a growth rate of 5% per year for EPS growth. The 5-year average EPS growth rate was 22%, according to Morningstar. However, analysts’ consensus predicts EPS growth of just 1.5% in FY 2023, 9.3% in FY 2024, and 6% in FY 2025, according to MarketScreener.
For the price-to-earnings (P/E) multiple, I selected a multiple of 14.99 for calculating the terminal value, which represents the 5-year average of the years 2013-2017 and is well below the current 5-year valuation of 24.2 (2018-2022), according to Morningstar. Using this second valuation method, the fair value for Apple comes out to $88.53, indicating that the Apple stock is currently overvalued by 32%.
Technical Analysis of Apple Stock
Turning to technical analysis, it is clear from the chart that Apple is still stuck in a downtrend and has even broken the support line, marking a new 52-week low. This favors a further decline in the share price. Apple could potentially fall to around $119, which could act as a support line, before a significant upward reaction occurs.
Conclusion on Apple Stock
In conclusion, it appears highly probable that Apple will continue to fall, both from a fundamental and technical perspective. While Apple is a fundamentally and financially strong company, my fair value calculations indicate that the Apple stock is currently overvalued. Additionally, the downtrend in the chart and the uncertain macroeconomic environment suggest that further downward pressure is likely. As such, it may not be the best time to buy Apple stock.
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