Apple Versus Microsoft Valuation – ValueWalk Premium
Old School Value Nugget Fest

Apple Versus Microsoft Valuation

Hope you had a great Thanksgiving and time to catch up with family and unwind a little. Our Christmas lights are up in our home as we get ready to enjoy the last of 2018.

If you shopped for anything on Black Friday, online sales raked in $6.2B according to Adobe Analytics. That's just online sales. Offline, people were screaming, shoving, and stepping over people to get the latest leopard print onesie it seems.

Good news is that shopper confidence looks to be high. Markets are shaky, and the market may give a late Black Friday sale itself looking at the action going on.

Vitaliy Katsenelson of Contrarian Edge posted today why they sold out of AAPL.

  • iPhone and iPad are mature products where growth is coming via increased prices. Not increased sales.
  • Apple no longer disclosing unit sales and trying to become a services company.
  • Fighting against better competitors in the services field (Google, Amazon, Microsoft).

In any case, the market believes that Apple will grow at 2.62% based on the current stock price using a reverse DCF.

Old School Value Nugget Fest

The important question to ask is whether your view of the company comes up with Apple growing slower or faster than 2.6%.

  • EV/EBIT is down to 12.6x
  • P/FCF is 13x
  • rough valuation is in the low $200 range. That's about 20-25% margin of safety.

And then there's the usual stuff with Apple.

  • Strong brand
  • Solid fundamentals
  • Tons of cash

The part to consider, like what Vitaliy mentioned, is how likely will Apply be able to compete and gain market share in the services area.

Apple certainly isn't known as a software or services company and that's where I do see the point Katsenelson is making.

  • In app services they need to compete against Android and Amazon
  • On the music side, they need to keep Amazon at bay
  • On the media side, they need to catch up with Amazon and Netflix
  • On the hardware side, Google and Amazon are running away

With so much cash on hand, I certainly wouldn't write them off. Look at the string of successes Microsoft has achieved under Satya Nadella after a decade of blandness under Steve Ballmer.

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