Alex Cho
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How to Approach Apple's Valuation

Deutsche Bank released a report a couple days ago with regards to Apple, and they essentially had some fairly recent concerns when pertaining to the company’s valuation.

Source: Deutsche Bank

In a nut shell, Deutsche Bank mentions that the company’s market capitalization as percentage of the S&P 500 exceeds 3%, and there weren’t that many companies that could sustain a valuation beyond that thresh hold. Furthermore, the asset weightings at mutual/index funds may prohibit some going even more overweight on the name.

Here’s what Sherri Scribner mentioned:

We believe the 3% level is significant and has led to the largest S&P 500 companies trading at a discount to the overall market. As seen in Figure 14, since 2005, the largest stock in the S&P 500 has traded at a discount to the overall market. As seen in Figure 15, this period coincides with the largest S&P 500 company’s market cap reaching more than 3% of the index, when excluding the dot-com bubble. The average percent of the S&P 500 for the largest company has been 3.6% since 2005, and during this period that largest constituent has traded at an 18% discount to the market.

Companies that exceed the 3% market cap threshold trade at an 18% discount on a comparable value basis. So, expecting Apple to trade on valuation alone is a bit foolhardy, as it’s unlikely that Apple’s market cap will significantly exceed a 3% threshold.