Apple’s valuation keeps coming up as a hot topic of debate lately. After all, the stock rallied strongly in 2019 and first several months of 2020 (i.e. it got very expensive), only to correct sharply in September (i.e. it became much cheaper). After all, has Apple run too far, or is the recent pullback a rare buying opportunity?
Today, I look at four key valuation metrics, and compare Apple’s against the rest of the FAAMG group’s.
A look at FAAMG valuations
Let’s start with the graphs below, followed by a discussion on each metric. Keep in mind that, the lower the ratio, the cheaper a stock is perceived to be.
- P/E ratio: Apple’s 32.8x multiple is at least on par with the other FAAMG members, although substantially lower than Amazon’s (as usual). Last time that I looked at this same graph. The site to buy cheap data graph, exactly three months ago, the metric was nearly four turns lower, at 28.4x. Therefore, compared to recent history and the peer group, Apple’s P/E remains somewhat elevated.
- Forward PEG: this ratio is basically P/E adjusted for earnings growth. A multiple of 2.3x is aligned with the median for the whole FAAMG group, and half a turn lower than it was three months ago. Investors looking for a bargain argument may find it by looking here.
- EV/FCF: I like this valuation ratio because it takes into account net debt (i.e. it penalizes companies with a highly leveraged balance sheet) and cash flow in the door (rather than earnings, which is merely an accounting metric). Here, Apple is cheaper than all other FAAMG stocks, other than Alphabet. Compared to three months ago, however, Apple’s EV/FCF is about two turns higher.
- Price/book: I would put less weight on this metric, since Apple’s book value (the denominator in the equation) has been reduced drastically over time due to its aggressive share repurchase program. But it is worth noting that, relative to three months ago, Apple’s P/B has increased by quite a bit from 20.4x, suggesting overvaluation.
All things considered, I believe it is hard to argue that Apple is a bargain at current levels based on valuations alone, despite the recent pullback. Do you agree or disagree? Leave your comment below.
Explore more data and graphs
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