What’s Apple Inc. (AAPL) Worth As A Fashion Stock?

On the other hand, Apple should be given the benefit of its huge amount of cash. I don’t think it makes sense to give its cash pile value on a dollar-for-dollar basis but it could be used to reduce the number of shares outstanding. The use of $30 billion, or about 75% of their liquid cash, for a buyback at $450 a share reduces the share count by 67 million to roughly 880 million.

So, the adjusted Apple valuation estimate assumes yearly sales at $159 billion with average cash earnings of $29 billion. Using its peer multiplier spread of between 16x and 18x, a reasonable fair value range looks to be around $527 to $593 per share.

But there should be some caution on the precision of the estimate. This valuation is contingent on maintaining a 35% pre-tax margin and that may not be likely. A seemingly small deterioration in the margin can have a meaningful effect on value. For instance, a pre-tax margin slip to 33% would cut about $35 off of business worth.

The appraisal also assumes Apple will use its cash intelligently. For example, simply using $30 billion to buy back stock at $550 per share rather than $450 would knock around $10 off the estimate.

Finally, as a fashion company, Apple is increasingly at the mercy of consumer taste. If Apple products go out of vogue for any reason, these fair value assumptions would probably be highly exaggerated.

Obviously, a lot more investigation is necessary to get a better evaluation of Apple’s worth. But given all the noise surrounding the company and the increased volatility in the stock, this exercise might be a helpful benchmark for further study.

The article What’s Apple Worth As A Fashion Stock? originally appeared on Fool.com and is written by Bob Chandler.

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