Apple – Model Price Update – Resistance is $600 (Update)

In our blog on February 15, 2012 we noted that AAPL was running and the next area of resistance would be EBV+6, which we calculated to be $600. We reproduced the chart we inserted in our blog for your reference.

Apple with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Also, AAPL announced, with great fanfare, a quarterly dividend and a stock repurchase program, which we speculated would happen. We applaud this corporate action, however tepid, considering the resources (cash on hand) they have on their balance sheet.

Now that Apple is Trading at $600, what now?

Here is our Model Price Chart (calculated as of last night).

Apple with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of AAPL subsequent to this post will be maintained on Facebook, here.

Both the fundamentals (earnings) in terms of model price and the Economic Book Value (EBV) lines are growing quickly. For fun, let’s look at what model price and the EBV lines look like one year from now. We can model the balance sheet one year from today, obviously taking the announced dividends, into our calculations. What we can’t do is anticipate the share repurchase program and the amounts. This, obviously, is of the discretion of management. Any share repurchase would have a positive impact on model price and slow the growth of the EBV lines. However with the numbers management are suggesting the results wouldn’t be that material.

March 22, 2012 March 22, 2013 Differential
EBV+6 $619.23 $881.16 42.3%
Model Price $511.80 $586.80 14.65%

What we are saying with this table?

If AAPL follows along EBV+6, no change in valuation from today, AAPL will be up 42%. Model price seems to be growing slower, however a stock repurchase plan and higher earnings will help boost model price over time.

What do I do today?

AAPL is probably a little over bought just now, for new purchasers. Also AAPL is trading at a premium to its’ model price. What a “rational investor” would wish for is a substantial correction in the market. Buying AAPL at model price, or at a discount to model price, would be a positive. “Rational investors” are hoping Greece, China, the PIIGS, anything that would cause “irrational investors” to sell shares, even those of AAPL.

Please Mr. Market, go down so I can buy Apple at its model price.

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