Is Apple's Stock Overvalued Or Undervalued?

Apple Inc AAPL shares have lagged the S&P 500 in 2021, generating a year-to-date total return of just 12.6%. Apple is still putting up impressive growth numbers.

But with a $2.54 trillion market cap, some investors are wondering if there’s any value left in Apple stock.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is currently at about 34.6, more than double its long-term average of 15.9.

Apple’s PE is currently 29.4. While that number is certainly under the S&P 500 average as a whole, Apple’s PE has more than doubled over the past five years, suggesting its valuation has become fairly stretched.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.7. Unfortunately, Apple’s forward earnings ratio of 26 doesn’t make the stock undervalued at its current price. In fact, it appears to be fairly valued compared to technology sector peers that are currently averaging a 26.4 forward earnings multiple.

However, when it comes to evaluating a stock, earnings are not everything.

Growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1; Apple’s PEG is 1.49, again suggesting valuation upside may be limited.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.1, nearly twice its long-term average of 1.62. Apple’s PS ratio is 7.3, which is not exactly what value investors are looking for.

The Verdict: At its current valuation, Apple stock isn’t showing any clear signs of being overvalued. Unfortunately, it doesn’t seem to be particularly undervalued either.