Visualizing the Value in Apple Stockhttp://www.fool.com/investing/general/2013/09/05/visualizing-the-value-in-apple-stock.aspx Daniel Sparks
September 5, 2013
With Apple (NASDAQ: AAPL) trading near $500 again, it's time to return to the drawing board and look at the King of Cupertino's valuation. As it turns out, Apple still looks tasty at $500.
Low expectations haunt Apple's stock
Assuming investors require a 10% return on their investment in order to take the risk of investing in the stock market, a P/E of 10 suggests that the market believes a company's underlying earnings growth will not outpace inflation.
With Apple trading at a P/E of 12.5, it's easy to see the Street has low expectations for the company's EPS growth -- even despite its massive share repurchase program. Even at $500, investors' expectations for Apple paint a very gloomy picture when compared to other megacap cash cows: Google, Procter & Gamble, McDonald's, and Wal-Mart.
Relative to free cash flow, Apple looks even cheaper.
The story gets even more confusing when you take into consideration Apple's free cash flow yield. A free cash flow yield refers to the percentage of every dollar of sales a company is able to convert into free cash flow.
Despite Apple's uncanny ability to turn a quarter of every dollar of sales into free cash flow, the market refuses to give the stock a premium.
The same story prevails when you compare Apple to all of its peers in the <