Apple Stock Forecast: Why Apple ($AAPL) is currently undervalued?

zack Zack Tobin is a Financial Analyst at I Know First. 



Apple Stock Forecast

  • After falling for 3 months Apple is back up over 100
  • Ability to repurchase shares and customer loyalty leads to room for growth.
  • P/E Ratio and Free Cash Flow yield show Apple is undervalued
  • Algorithmic Bullish Outlook On AAPL Stock

Is it Safe to Buy Apple?

Between the intense security debate, and the stock dropping, Apple has had a rough start in 2016. However, in the past month, Apple’s stock has rebounded 8.8% and has risen above $100. Currently, Apple’s EPS is at $102, which is still fairly cheap for the company. Does this mean that the Silicon Valley tech company will fully recover, or was the last month just a temporary bounce in a long decline? Let’s take a look.

apple stock analysis

Room For Growth

The main advantage Apple has over almost every company in the world is name recognition and brand loyalty. This means millions of customers around the world are going to be more willing to come back and buy their new product, just because it’s Apple.

Unfortunately, the loyalty of Apple’s customers has been called into question as of late following a decline in iPhone sales. This is a legitimate problem for Tim Cook as iPhones make up 53% of the company’s total revenue. The drop is largely believed to be because of poor foreign exchange rates, which is lowering demand. There is a good chance that Apple will see an increase in sales when the iPhone 7 is released in November of this year. Most of the changes made to the phone appear to address a lot of customer complaints. Early pictures show the thinnest model yet, a new and improved camera, and reduced antenna lines.

apple stock analysis

The other area for growth comes from Apple’s ability to repurchase shares.  More than 20% of Apple’s revenue will become cash flow needed to repurchase shares. As long as the stock trades conservatively (as stocks as big as Apple tend to do) the repurchases will build shareholder value and boost EPS.

How Apple Is Undervalued

When looking at Apple’s Price-to-Earnings ratio and their Free Cash Flow yield, the company appears to be undervalued. Apple’s P/E ratio is 11, which is barely enough to outpace inflation. In comparison, an average S&P 500 stock’s P/E ratio is at 23. Apple also currently has a very high free cash flow of 11%, the highest it’s been in five years. This is well above other tech giants such as Alphabet and Microsoft which have free cash yields at 6% and 3% respectively. The higher the free cash flow yield, the more conservatively the stock tends to trade. This is a sign that Apple is selling quite cheaply.

Sales Expectations

In an article from, Morgan Stanley was quoted saying that iPhone demand was being tracked ahead of expectations. Analyst Katy Huberty mentioned in the same article that the iPhone tracker used by the firm AlphaWise is indicating the demand for iPhones to be in the vicinity of 56.5 million units while Apple officially estimated only 49 million with comments from management indicating a number up to 52 million units.  “Apple exited last quarter “slightly above” the low-end of its 5-7 week iPhone channel inventory target,” Huberty notes. “Any inventory fill for Apple’s indirect distribution channels would put further upward pressure on estimates. Every 1M iPhone shipments add $640M of revenue and $0.04 of EPS to our March quarter estimates of $50.9B and $1.94 (cons. $52.1B and $1.99).”


Now would be an excellent time to buy Apple, as it is still undervalued. The decline in iPhone sales is a concern and should be noted by investors, but with $2.4 billion dollars being spent on research and development in the last quarter alone (a $509 million dollar increase from a year ago), it’s clear the company is looking for new ways to improve its products. Given Apple’s track record, you can expect this money meant to develop the technology will be well spent. growth and value investor James O’Shaughnessy gives Apple a very high rating of 80% buy.

I Know First is a FinTech company that created an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies. In essence, the algorithm generates a forecast with a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts, and the results of these predictions are shown on a daily basis on the I Know First website.

apple stock analysis

As you can see above I Know First is Bullish for Apple in the 1 month, 3 months and year-long forecasts. This is in line with most analysts’ stance as seen in the image below, which mirrors our bullish outlooks. The signal for the 1 month is 89.12 and predictability of 0.32, for the 3 months is 126.96 and the predictability 0.31 and for the 1-year forecast, the signal is 7.89 and predictability 0.24.

analyst rec aapl

(Source: Nasdaq)

Previously I Know First predicted Apple’s stock movement in this forecast from the 15th of July 2015. It had a signal of 4.50 and predictability of 0.6 bringing after a one-year return of 53.02%. The Algorithm correctly predicted 9 out of 10 stocks in the forecast and brought returns greater than 25%.

apple stock analysis

More recently $AAPL stock is up more than 2% since yesterday in the red market and more than 12% since this bullish forecast on $AAPL as the stock had a bullish 3-month signal of 26.44 and predictability of 0.27.

apple stock analysis