Is Apple Stock Reasonably Priced At $89?

First, let’s take a look at Apple (AAPL), technically. It’s almost retraced back to 61.8% from its May 2003 low of $7.00 per share. Its high was $202 less than a year ago. From a price standpoint, it certainly seems like it’s more reasonably priced that it was less than a year ago.

Second, how about its business ? Is it a business that is “recession proof” ? Here’s their business description/strategy from last year’s 10k Filing. No surprises.

Let’s take a look at what they sell and where they sell it. It looks as though Ipod and music sales are greater than their desktop and peripherals. It also looks as though USA and Europe account for the majority of their sales.

AAPL looks solid - No Debt, Increases in Shareholder Equity.

Off Balance Sheet Stuff - OK what’s this stuff? Looks like 4.6bn of liabilities that aren’t booked on the Balance Sheet. I don’t like this stuff. Relatively manageable though given AAPL’s size and cash flow and lack of long term debt.

The section on foreign currency risk gets interesting. We’ve obviously had some major swings in the currency and also interest rates. Apple suggests that a strong dollar will tend to hurt their sales. It could also result in their having to resort to price cutting to maintain sales volume in overseas markets.

Last year (2007), Apple had approx. $5bn in Free Cash Flow…not bad. They had approx 889mm shares outstanding at the end of last year. That’s approx $5.00 per share in free cash flow. They also had about $15bn of cash and equivalents on their balance sheet as of the end of 2007.

Their investment portfolio could take a bit of a whack….They’ve got some corporates and agencies that have been banged up pretty good over the last quarter.

I put together my estimation of AAPL’s intrinsic value above. I think that overall you could conclude that AAPL is reasonably priced at this level. We’ll see.

It’s the largest holding in the QQQQs. I’ve been looking at a lot of the companies in the QQQ.
There seem to be a large number of cash cows that are being thrown out with the bath water. MSFT, CSCO, GOOG etc. I think that the QQQ represents some pretty good value here. This is not an investment reccommendation to go out and buy Apple or the QQQs. I wrote this and posted this in hopes that it would make people think more about their decisions regarding the stock market.

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