Wall Street Warms up to Apple, AAPL Valuation Update
Hello everyone.
Over at Above Avalon’s sibling site, Inside Orchard, my essay last week, "Big Tech Is Winning Over Wall Street," went over a Wall Street observation that has been on my mind for the past few weeks.
While NVIDIA was capturing many hearts and minds on Wall Street, a larger story was quietly unfolding in the background. Wall Street was turning decidedly more bullish on the broader Big Tech bucket (Microsoft, Apple, Alphabet, Amazon, Meta). The change in tone isn’t just attributable to AI either. That may come across as a shocking stance to hold - the Inside Orchard essay goes into more of my thinking.
For today, we will keep our focus specifically to how Wall Street is warming up to Apple. The discussion then turns to an examination of AAPL valuation metrics (forward P/E, EV/FCF, and free cash flow yield).
Wall Street Warms up to Apple
A few weeks back, we talked about the trading action seen in Apple shares following WWDC. The signs pointed to algorithm-driven program trading leading to a sudden move higher. It’s certainly possible that some market participants were swayed by other things like fundamentals, but the heavy trading volume suggests something more systematic. Another possibility that we did not explore was a pair trade involving
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AAPL Valuation Metrics, Apple's Improving Valuation, Apple Close to $3 Trillion Market Cap (Again)
Hello everyone. The update kicks off with an examination of AAPL valuation metrics (forward P/E, EV/FCF, and free cash flow yield). We then go over Neil’s thoughts on why Apple’s valuation metrics have improved so dramatically in recent months. The discussion goes over Apple getting close to a $3 trillion market cap for the second time.
Let's jump into today's update.
AAPL Valuation Metrics
The AAPL roller coaster continues.
When we last talked about AAPL valuation at the beginning of the year, shares were on a down trend (-28% from all-time highs put in January 2022). Since that update was published, AAPL shares are up a whopping 45%. These are large, although not entirely unusual, moves for such a mega cap stock.
For today’s valuation exercise, it's prudent to run with a forward EPS estimate (earnings for the next 12 months) of approximately $6.00. With Apple shares trading at $189, the company’s forward price-to-earnings ratio (current stock price / forward EPS) is 32x. This is up significantly from the beginning of 2023 when shares were trading at a 20x forward multiple. It’s not the easiest exercise to compare the current forward multiple to historical averages given that we are relying on forward estimates and not reported figures. With that said, a 32x forward multiple would be close to all-time highs for Apple in the modern era. Shares had gotten close to the level in the summer of 2020 as shares made a major move higher prior to significant EPS growth which subsequently brought forward multiples down.
To put the 32x forward multiple in context, we compare Apple to various sectors and the overall market using the S&P 500 as a proxy.
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