According to Bloomberg, Apple Inc (AAPL) has told its suppliers that demand for its iPhone13 has slowed. The company cut production by as many as 10m units due to the global chip shortage. However, the remaining orders are now also under pressure, given this slump. The holiday season is Apple's biggest quarter. Given these developments, turnover will become a key focus for short-term prospects.
We ran a Monte Carlo discounted cash flow to determine AAPL's value. Our assumptions:
- Risk-free rate: 1.42% (derived from US10Y).
- Average market return: 6.67% (MSCI Global mean since 2000)
- Discount rate: 5.64% (calculated)
- Growth rate: 2% (assumed)
The variables that we ran through the Monte Carlo simulation:
- Working Capital.
- Tax Rate.
In the simulation, we considered ten years of financials. The range of the variables during this time frame was large. Therefore, we settled on the median to account for outliers. We then applied a standard deviation to the medians for a 5-year forecast and calculated a terminal value for the company after the forecast period. Initially, we applied a high standard deviation due to volatility associated with the pandemic, lowering the risk for the middle years and then expanding it into the latter years due to the distance. Finally, we ran 10,000 simulations and averaged the results per forecast year. Lastly, we adjusted for net debt, so that only equity is considered in the final values.
Our results have a slim positive skew and are as follows:
- Average price: $161.73
- Median price: $160.49
- Standard deviation: $49.10
- The current share price is $164.77, which is very close to our simulation price (albeit slightly overvalued)
The distribution of prices given the 10,000 simulations:
Past Performance: Past Performance is not an indicator of future results.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.