Apple Inc. (AAPL) Shares Could Double From Here: Microsoft Corporation (MSFT), Nokia Corporation (ADR) (NOK)

Discounted cash flow valuation

I’m comfortable with a long-term revenue growth outlook of 10% to 15% on Apple. The company currently has a cash flow margin of 30%. Longer term, though, I believe the company can leverage better cash flow from its operations — it can boost that margin into the mid-to-high 30s.

I expect Apple to grow its cash flow at a 10%-12% rate for the long term, which will lead to a steep looking compound cash flow growth rate of over 15%. Discounting that back using a WACC of 10%, it suggests a fair value of about $900; or almost double from the current level. In other words, the stock is priced for more than 30% annualized returns in the next three years if you buy at the current share price, assuming sales and cash flow grow as stated.

Foolish bottom-line

Based on several financial metrics, shares of Apple currently appear quite cheap. Stocks like Apple don’t often give investors a chance to buy at such a substantial discount to a fair value, so this sell off is certainly a tempting opportunity. I think, Apple’s share price will continue to rise over the next few years. All told, I believe Apple shares could double from here.

The article Apple Shares Could Double From Here originally appeared on Fool.com and is written by Nauman Aly.

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