The goal of the Valuation Model is to provide a fair value trading range for AAPL. The purely mathematical model is a combination of several concepts:
- CPE Valuation Concept – Continuous P/E, where P/E levels are connected with straight lines from earnings release to earnings release (the blue dots).
- CPE Range – AAPL trades in a trading range each quarter that is about 2.3 to 3.0 CPE levels high.
- Valuation Range – AAPL trades in a valuation range that honors valuation support / resistance levels.
- Earnings Growth – AAPL’s Trailing Twelve Months (TTM) Earnings Growth
AAPL trades at a higher CPE valuation level (CPE 13-16) with strong growth, such as 2010-2011, and at at lower CPE valuation level (CPE 9-12) with no growth or negative earnings growth, such as in 2013. The model assigns an expected CPE valuation range based on TTM growth – similar to a PEG ratio. The model additionally adjusts for the second derivative of earnings, i.e. change in growth, pushing the valuation range up with increasing growth and pulling it down with declining growth.
The chart shows the model’s fair valuation trading range bounded by the black lines, as well as extreme high and depressed low valuation levels represented by the gray lines. This model was formulated in 2013 and has remained unchanged since.
Note about future earnings projections represented in the chart: Current quarter is based on my own earnings estimate model.