Is Apple Stock Undervalued after Its Recent Price Decline?


Jan. 2 2019, Updated 11:05 a.m. ET

PE ratios

In this article, we’ll compare Apple’s valuation with that of the other FAANG[1.an acronym for the market’s top five tech stocks: Facebook, Amazon, Apple, Netflix, and Google] stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL). We’ve already seen that Apple’s (AAPL) revenue and EPS are expected to rise 4.6% and 11.6%, respectively, in fiscal 2019. In line with its earnings growth, its forward PE ratios are expected to be 11.3x and 10.3x in fiscal 2019 and fiscal 2020, respectively, making it not too expensive.

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Meanwhile, peers Facebook, Amazon, Netflix and Google have forward PE ratios of 16.9x, 70.4x, 92.7x, and 23.8x, respectively, and revenue growth of 36.2%, 30.6%, 35.3%, and 23%. While Facebook’s EPS are expected to rise 37% this year, Amazon’s, Netflix’s and Google’s EPS are expected to rise 334%, 113%, and 29.6%, respectively. FAANG stocks appear undervalued considering their robust revenue and earnings growth.

Returns on assets and equity

Apple’s expected ROA (return on assets) is 17.1% in fiscal 2019 and 17.8% in fiscal 2019. Its expected ROE (return on equity) is 65.5% in fiscal 2018 and 79% in 2019.

Facebook, Amazon, Netflix, and Google are expected to have ROAs of 24.1%, 8.6%, 6.2%, and 14.8%, respectively, in their current fiscal years, and their ROEs are expected to be lower, at 24.1%, 8.6%, 6.2%, and 14.8%. Apple’s net margin is expected to be 22.1% this year, and Facebook’s, Amazon’s, Netflix’s, and Google’s are expected to be 39.2%, 4.3%, 7.5%, and 21.6%, respectively.

Comparing market-cap-to-revenue ratios

  • Apple’s market-cap-to-revenue and EV[1.enterprise value]-to-EBITDA ratios are 2.57x and 7.35x, respectively.
  • Facebook’s are 6.5x and 9.6x.
  • Amazon’s are 2.90x and 20x.
  • Netflix’s are 6.79x and 5.02x.
  • Google’s are 57.2x and 11.5x.

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