Apple Multiples Valuation

Unlike a traditional DCF model, doing a multiples analysis with comparable companies is a lot easier and quicker to do. The four companies I used to compare with Apple are: Microsoft, Amazon, Netflix, and Google.

I used Microsoft because Apple and Microsoft are competitors in the field of hardware, mainly computers. Amazon and Apple are comparable because they're both tech giants in their respective fields and even have services in common such as Amazon Prime/Apple TV and Siri/Echo. Similarly, Netflix and Apple compete with each other in regards to their streaming services. Google and Apple both produce hardware like home-pods, phones and computers, despite Apple being considerably larger.

The multiples that I used for the valuation are: EV/Sales, EV/EBITDA, EV/EBIT, and P/E. EV is the Enterprise Value of a company, which can be calculated by subtracting cash and cash equivalents and adding total debt to the Market cap. EV is the true value of a company while taking into account factors such as debt and excess cash, unlike Market cap. P/E or the price to earnings ratio, by dividing the share price of a company by their EPS (earnings per share), which is calculated by dividing a company's profit by the total number of outstanding shares. For my model, I used P/E (TTM) which uses the EPS over the last 12 months. EPS(TTM) can be found on any financial site, in my case I used Yahoo! finance. I think the P/E(TTM) or the trailing price-to-earnings ratio is more objective as it doesn't take into consideration future performance.

Multiples Valuation

As we can see with the average P/E compared to Apple's is far larger. This could be indicative of Apple's stock price being undervalued. When I divided Apple's EV by their shares outstanding, I found that the Fair Value of Company of $139.89, is quite a bit more than their current stock price of around $135.35. Equity value still seems confusing to me as some define it at be basically Market cap, whereas others say it is slightly different. I will research their distinction further and see how I can calculate the Equity value.

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