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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: soup who wrote (24142)	4/19/1999 12:54:00 PM
From: Andrew Danielson	Read Replies (2) \| Respond to of 213177

A little fully-taxed valuation analysis I often forget (or choose to ignore) the fact that AAPL's earnings are currently benefiting from a temporarily lower tax rate. Motley Fool said that if this year had been fully taxed, AAPL would be earning something more like $2.00 per share. Given that consensus estimates have been/will be guided higher due to Q2's good performance, let's say they would be earnings $2.10 per share. AAPL is trading at 35 1/2, which puts FY99 PE at 16.90. Yahoo puts the consensus 5-year growth rate estimate at 16.4%. This jives with Eric's earlier statement that the "core" revenue growth shown in Q2 was about 16%. If costs stay proportionally consistent and margins remain stable, revenue growth rate should look a lot like the long-term earnings growth rate. So, this puts AAPL's PEG (PE divided by growth rate) at over 1, 1.03 to be exact. Traditional value analysis holds that a stock with a PEG under 1 is undervalued, while over one is overvalued. This, of course, means AAPL in this context is fairly valued at 35 1/2! Today's market is hardly value-driven, though, and finding large companies with PEG's below 1 is darned near impossible. I should note, however, that Gateway currently has a PEG slightly below AAPL's. AAPL still has a few arguments up its sleeve though. One: additional revenue stream(s) have yet to be added to the mix (consumer portable, Quicktime 4.0 (maybe), the Vaio-like notebook Jobs talked about at the shareholders meeting, etc.). This could propel AAPL's long-term growth rate higher than 16%. You could also make market/industry arguments. If one argues that the PE's of the SP500 are legitimate given today's economic conditions, then AAPL could be viewed as still undervalued relatively speaking, rather than historically speaking. Andrew