Replies to post #79417 on Apple Inc (AAPL)

[langostino]

"Is it not possible?"

No, it's not possible. The financials you're talking about were operating with 30:1 leverage. Apple operates with less than 1:1 leverage.

Why is it not possible for AAPL to trade to $25? Because between its net cash (which will be near $25/shr by end of next quarter) and its real estate holdings and the value of its IP, you've got fire-sale liquidation value of at least $40. That's the ultimate backstop.

Beyond that, the only way for AAPL to trade down anywhere near net asset value would be for it to go cash-flow negative. There was a time when that was possible. The fixed-cost base on the Expense side of the ledger was large enough that a variance of 20% on the Revenue side could tip them over. Today, the fixed-cost base is a fraction of Revenue. There's basically zero chance Apple goes cash-flow negative unless it intentionally wanted to. Even then, it actually would be very hard for Apple to go cash-flow negative. Their cash piles up on them so fast these days it's amazing.

You could walk in tomorrow and remove the entire iPod business and the entire Mac PC business and Apple would still be cash-flow positive.

Sorry, there simply isn't a realistic path for your scenario.

[Tex]

repricing tech

25, is where i see it going to in 2-3 years from now...is it not possible? who thought these financials were going to be traded for pennies 3 years ago? Those with foresight, right? Well I see that tech will be re-priced that's all.

The way financials gutted themselves was loading up their books with inadequately-secured debt they couldn't unload, just to get origination fees. This reminds me slightly of GM giving price guarantees (for future trade-in value) on gas-guzzler SUVs to move them, right before fuel prices drive demand out of SUVs, causing trade-ins on vehicles GM's dealers will never move.

The difference with Apple is that it's actually selling a product at a profit, without any strings. The money is in the bank.

It's possible to reprice cash -- it's called inflation -- but if we're not talking about commodities but just U.S. dollars, exactly how will massing piles of cash start to be worth so much less?

Maybe you haven't looked at Apple's cash per share. Apple has just under 886 million shares. In the first three fiscal quarters, Apple's cash has increased $5.4 billion. Cash and cash equivalents exceed $20 billion.
http://jadedconsumer.blogspot.com/2008/08/cashing-in-at-apple.html
On my math, cash per share is about $23.50 as of last quarter. Unless you can posit some reason Apple will stop amassing cash, one would expect cash per share to exceed your price target in the time frame you describe.

Well I see that tech will be re-priced that's all.

Whatever happens to dollars per ounce of gold, or dollars per barrel of fuel, a dollar is likely to still cost a dollar, and with over $25 a share in cash in a profitable business, it'd be a very scary environment that would produce a share price of $25.

But feel free to post your math.

Take care,
--Tex.