Apple Inc (AAPL)

[langostino]

fmike - what I meant

was that reasonable people can differ about the inputs to a DCF calculation. First of all, there are several ways the formula can be constructed. Second, everything from assumed terminal rate to discount rate and assumed risk value are either subjective, value-based or will differ based on projections.

My comment about $14 wasn't based on market psychology, but balance sheet and NAV. Unless Apple alters its cost structure dramatically or goes seriously negative in sequential revenue, it won't return to earnings losses, and only when a company is posting earnings losses, or has substantial risk of future earnings losses due to catastrophic event, is there really isn't much reason to contemplate a share price that infers negative enterprise value.

What you refer to as "belief" is nothing more than extrapolation of assumptions about future revenue and earnings growth. Right now, there's a straight-line extrapolation being drawn using current growth rates, and if they were to continue on into the future indefinitely, then AAPL is not far from being worth what it's trading at right now.

So ... to a degree, Morningstar does try and value that, it's just that they use more conservative assumptions.

So the answer to the "What's holding it up?" (or "What's keeping it down?") question is always the same -- the level of the assumptions reflected in the market's belief at the moment. At the current price, AAPL reflects future growth assumptions that are at the very top of the historic range the company has experienced over its corporate life. Just as it was at the very bottom of the historic range back when it was at $12.

One thing I think you can count on ... at some point in the future, there will come a day when the broader market won't "believe" in the assumptions of the most perfect extrapolated scenario. Typically it happens right about the time the first quarter of decelerating earnings shows up. If you're in the stock, you hope it's just a modest deceleration that offers you an opportunity to exit at your stop-loss. As opposed to say .... a giant whopping miss, when the stock drops through the stop and freefalls down 25% or 30%.