Anticipating Apple’s share price by following its capital expenditures

What you’re looking at below is a chart overlaying Apple’s yearly share price over its revenue (broken down by product line) and its quarterly expenditures. The chart, expertly put together by Horace Dediu of Asymco, shows that Apple’s share price has effectively gone up in conjunction with Apple’s revenue. Not a huge shocker there.

But what’s worth taking note of is that the more Apple puts into expenditures the greater the output. In other words, as Apple lays out more and more cash for the materials and equipment used to manufacture its products, it’s enjoyed a sizeable return on investment both with respect to its share price and its overall revenue.

“The scale, Dediu writes, “gives an approximation of the relationship where $ 50 billion in quarterly revenue roughly yields a share price in the $ 700 to $ 800 range.”

Below, you can see that Apple’s estimated FQ4 budget for 2012 is at least a quarter more than it was during the previous quarter. This therefore begs the question – just how high will Apple’s shareprice go?

Dediu adds:

Recall that expenditures are booked ahead of output and therefore we have this apparent view into the future. The fourth fiscal quarter’s spending has just ended and the output will be produced during October-December period.

It takes money to make money. The relationship seems to be that $ 1.5 billion of CapEx per quarter yields a share price of $ 800. With spending reaching $ 3 billion per quarter will the share price reflect a similar ratio?

A similar ratio would imply a share price of $ 1600, which believe it or not some analysts see as possible over the next 2-3 years. For the time being though, the next great stock target for Apple shares is $ 1000, which some feel will be reached before the end of 2013.

Clearly, with the release of the iPhone 5 and the rumored iPad Mini looming over head, not to mention a completely revamped iPod lineup along with relatively new MacBooks, Apple’s upcoming holiday quarter is looking to be absolutely monstrous. At the time of this writing AAPL shares are trading at about $ 640 with a P/E of 15 or so. Might be a good time to buy in if you see Apple climbing back up as we embark on the busiest shopping season of the year.

Edible Apple

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply