I agree with Jae Jun. Apple being a tech company has stroke investor’s imagination. Judging from the past results, most people would have discounted APPLE as dead and moved on, only to miss one of the most dramatic business transformation.
However such transformation is hard to value. In other words, it’s a little bit like lottery. Creative destruction/renewal hits like a typhoon leaving no one unhurt, either for the benefit of the company or the demise of it.
Therefore to be on the safe side, there are stewardship grading, innovation grading which can to some extend give a guide on what the company is capable of dreaming up and executing successfully.
One should never discount what APPLE can do to create entirely new businesses or industries making them huge profits. On the other hand, it should also be moderated with safety margin by looking at it’s ability to generate FCF from it’s existing businesses in a sustainable and growing manner in which to fund future projects.
Price to book, P/E, FCF as well as wide economic moat are key having good protection from losing money.
At the end of the day, Vision are in the future, facts are still facts, i.e. how much you earn and how much you have in the bank.
In other words, safety margins needs to be considered, perhaps in the case of Tech visionary companies, the margin of safely can be loosened a little in view of the ability of the company to come up with HITS after HITS (which cannot be estimated or valued accurately).
Morningstar values AAPL at 160, apply Graham’s discount of 50% according to you would value the company at $80 a share. At $80, that is still some >4 times Book value, while I would buy it and have bought it, that is because that in investing, you cannot ignore Market sentiment and behaviour.
Some companies can be overvalued and stay over valued for long periods of time. There are more sheeps out there than Eagle eyed investors. And when sheeps move in numbers, there is nothing the eagles can do.

Thanks for the insight Paul

I agree with Jae Jun. Apple being a tech company has stroke investor’s imagination. Judging from the past results, most people would have discounted APPLE as dead and moved on, only to miss one of the most dramatic business transformation.

However such transformation is hard to value. In other words, it’s a little bit like lottery. Creative destruction/renewal hits like a typhoon leaving no one unhurt, either for the benefit of the company or the demise of it.

Therefore to be on the safe side, there are stewardship grading, innovation grading which can to some extend give a guide on what the company is capable of dreaming up and executing successfully.

One should never discount what APPLE can do to create entirely new businesses or industries making them huge profits. On the other hand, it should also be moderated with safety margin by looking at it’s ability to generate FCF from it’s existing businesses in a sustainable and growing manner in which to fund future projects.

Price to book, P/E, FCF as well as wide economic moat are key having good protection from losing money.

At the end of the day, Vision are in the future, facts are still facts, i.e. how much you earn and how much you have in the bank.

In other words, safety margins needs to be considered, perhaps in the case of Tech visionary companies, the margin of safely can be loosened a little in view of the ability of the company to come up with HITS after HITS (which cannot be estimated or valued accurately).

Morningstar values AAPL at 160, apply Graham’s discount of 50% according to you would value the company at $80 a share. At $80, that is still some >4 times Book value, while I would buy it and have bought it, that is because that in investing, you cannot ignore Market sentiment and behaviour.

Some companies can be overvalued and stay over valued for long periods of time. There are more sheeps out there than Eagle eyed investors. And when sheeps move in numbers, there is nothing the eagles can do.

paul ho
http://paulhokangsang.blogspot.com

Jae,
Suzy raised a valid point – you are not adjusting discounted FCF’s i.e. aggregate/enterprise value by the cash which sits on AAPL. You need to add back the cash from enterprise value to get to an equity value!

Do you mean the cash and equivalents that AAPL has in its balance sheet?
The latest filing shows that AAPL has around $9 billion in cash and equivalent. As an example, if I do add that back in to your equity value, the share value comes out to be $140.92. Only 7% increase from the first $130.80. Now $9 billion, or the word billion sounds big but it didnt have that huge affect on the overall value.

More importantly, why I don’t add current cash equivalents? Well cash & equivalent is a part of current assets. Shareholders equity is total assets – total liabilities which already takes into consideration cash and cash equivalents.

I am buying a company where I am entitled to the cash as well as anything that can be converted to cash should the company be liquidated. Shareholder equity takes care of all this.

Jae,

Suzy raised a valid point – you are not adjusting discounted FCF’s i.e. aggregate/enterprise value by the cash which sits on AAPL. You need to add back the cash from enterprise value to get to an equity value!