If you follow the financial news or watch CNBC at all, you likely saw that Apple hit a market cap (company value) of $1 Trillion today. They are the first US company to surpass this valuation, and it is a staggering number to think about.
Today, I wanted to analyze whether the company is a buy, hold or sell based on the current valuation. Of course, this is my opinion and should not be taken as financial or investing advice. Here is my analysis:
Apple has a price to earnings ratio (P/E ratio) of 18.74, while the S&P 500 has a current price to earnings ratio of 24.44, though the mean is 15.70. By this standard, Apple is fairly priced and could even go higher and still be reasonably valued. However, based on Apples forward guidance about future expectations, the forward P/E ratio is 15.24, which means that the company has room to continue to go higher. (a high P/E ratio could mean the company is overvalued)
Apple has a price to sales ratio of 3.91, while the S&P 500 is 2.24. Apple has a price to book value ratio of 8.71, which is higher than the S&P 500 of 3.41. By these metrics, Apple is more expensive than most companies, but that doesn’t necessarily mean it is a sell.
Apple has a dividend yield of 1.45%, while the S&P 500 has a dividend yield of 1.81%. By this metric, Apple is close to average, though Apple has the capacity to increase its dividend at a greater rate than the S&P 500, as they are currently paying out less than $3 per share, but making more than $11 per share. In the past, Apple has used this strong free cash flow beyond their dividend payments to increase their cash position and invest in growth opportunities/new technology.
I will stop the analysis here, as these are statistical numbers. Of course, there are non-statistical factors to consider before making an investment decision – such as the popularity of the products, changes to competition, the management of the company, potential buyback of stock, etc.
My opinion based on my analysis is that Apple is a “hold”.
I believe the stock is fairly valued, and has the opportunity to go higher, though I see downside risk as well. I feel the dividend is adequate, and expect it to grow bigger. I think the company is well run, and has lots of opportunities, though unmet expectations or slowing growth could have adverse results on the price of the stock.
What do you think? Is Apple a buy, hold or sell?
Brian