US stock markets reversed losses on Monday after ISM non-manufacturing numbers came out and Billionaire investor Warren Buffett spoke enthusiastically about the state of American business. A contraction in Chinese manufacturing, and continuing violence in Ukraine, caused markets to open lower but stock markets were not in the red for too long and managed to finish the session up by around 0.10%.

There were plenty of stocks in the green yesterday and Apple shares gained around 1.4%, taking the stock past the $600 mark for the first time since 2012. The company is now higher by around 15% since the company reported earnings a few weeks ago and over 50% higher than it’s April 2013 low.

Is Apple stock still a good buy?

Clearly, Apple at $380 was excellent value and I spoke at the time that the plunge from $700 was a tremendous opportunity. Buying into such a quality company at such cheap prices has meant that those brave enough to invest will now be looking at 50+% gains without having to endure any pain at all.

Is Apple stock still a good buy chart

Now that the stock is up to $600 again, a potential investment is likely to be more risky and buying now could lead to some losses in the short term. Longer term, however, I continue to see Apple as one of the best large cap stocks available, and for many of the same reasons that I discussed in my article for Seeking Alpha here.

Most importantly, the reasons for buying Apple stock then, still apply today. Notably, the financial conditions still indicate excellent value.

PE is cheap at 14.36 and PEG is still below 1 at 0.96. Price to sales is still reasonable, and the recent strong earnings results mean that Apple has managed to grow EPS at an average of 42% over the last 5 years. These are strong numbers and make a good case for still investing in the company.

DCF valuation

Another way of looking at the stock is to do a DCF (discount cash forecast) valuation.

Currently, Apple operates with a trailing twelve month EPS of $41.85 while EPS is expected to grow at 14.99% over the next 5 years.
If we use a more conservative measure of 10% over the next 5 years, falling to 3% thereafter (in line with inflation) and assume a discount rate of 11%, we get a DCF valuation of $718.64.

That means Apple at $600, trades at a 20% discount to the DCF measure, using a conservative estimate for growth.

Is apple stock still a good buy DCF

Based on the evidence, Apple still looks like a great investment even though the stock is now up past the $600 mark.

Tags: , , , ,


Leave a Reply

%d bloggers like this: