Apple (AAPL)

Total return at 5 years: -0.8%/year = -1.1% appreciation + 0.4% dividend. The target price ($322) is ex-dividend; the $6 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $231 · Multiples $264) is below the market price ($341).

Today — expensive, no margin of safety: at $341 trades ~29.2% above its value discounted to today (~$264); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$164.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($341) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (15.3%/year) above our base case (6.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$234.5 bn of owner earnings in year 5 (vs ~$153.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Owner-FCF neto de SBC (EV/owner-FCF). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Mature compounder of the highest quality: valued on EV/owner-FCF net of SBC —free cash flow less stock-based compensation (SBC is a real economic cost that reported FCF adds back)— and not on P/E, because owner-FCF is cash and makes the ~$62bn of net cash visible (which P/E buries inside the multiple). Rolling grid: the base year is the real TTM (revenue of US$466.8 billion as of Jun 27, 2026) and the projection is 12-month windows (+1y…+5y) — exactly 5 years from the last reported figure. The base-year owner-FCF margin is normalized at ~24.6% (OCF ~30% − capex 2.4% − SBC 3.0%): reported FY2025 (20.6%) is depressed by the payment of the EU State-aid ruling (taxes paid FY25 $43.4bn vs $26.1bn in FY24 — a one-off cash item), and the raw TTM (25.6%) is somewhat flattered by the timing of tax payments (Q1'26 paid only $3.4bn); the normalized ~24.6% is consistent with FY23 (23.2%) and FY24 (24.8%). The path decelerates +5.4% → +4.5% (the China recovery and the iPhone 17 are already in the base — they are not extrapolated). EV/owner-FCF compresses as owner-FCF compounds ~+6%/year and the margin rises on the mix shift toward Services (~75% gross margin). Buybacks reduce the share count ~−2.0%/year (from ~14,730M to ~13,315M) — the sustained net reduction revealed by diluted shares, net of SBC (gross repurchases in FY25 were $90.7bn; the TTM pace, ~$78bn) — and the ~14% of the flow that is not returned accumulates some cash. (The model's `netMargin` is the owner-FCF margin net of SBC —the valuation metric— not the accounting net margin.) Watch: Google's payment for default search (antitrust) and the iPhone cycle.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $322 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $341, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $322 in 5 years plus $6 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $264. Against the current market price ($341), the margin of safety is -29.2% (trades above the maximum → a premium is paid) and the total return at that price would be -0.8% annually.

• One business, one multiple. Apple is an integrated business; it is valued on a single multiple over owner-FCF net of SBC (cash minus stock compensation), not P/E and not sum of the parts.
• The multiple is the case. At ~43× owner-FCF for mid-single-digit growth: the valuation is rich; it compresses toward ~31× over five years and that compression absorbs the growth.
• The DCF confirms. The DCF (at the method's risk-free rate, terminal with no growth) gives a value today below the price: the stock is fully valued, with no margin today.
• Margin of safety at the end. At ~$341 the base return (~-1%) sits below even the risk-free rate: the stock preserves value, but without a margin of safety today — quality is what gets paid for.
• Optionalities kept separate. Apple Intelligence, an upgrade supercycle, and new categories are valued separately (default $0) → they do not contaminate the base; they are upside.
• The buyback sustains the return. The per-share value engine is not business growth (mid-single-digit) but the buyback (~2% of shares a year, the sustained net reduction) — modeled into the share-count path.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (102%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Strong and predictable cash. FCF (~$129bn TTM) is enormous, predictable, and highly converted; capex is very low (~$11bn TTM) — a top-quality, asset-light business.
• Extremely high return on capital. Yes — return on capital is among the highest of the large caps (low invested capital, high margins), well above the 10% bar.
• Creates economic value. Return on capital clears the 10% bar (market opportunity cost) by a wide margin → strong value creation per dollar invested.
• Conversion and stock compensation. Stock-based compensation is modest (~3% of revenue) — not a material trap; net income is clean and cash conversion is high.
• Normalizing the state-aid one-off. The EU ruling introduced a one-time ~$10.2bn charge to FY2024 earnings and the cash payment in FY2025 (taxes paid $43.4bn vs $26.1bn FY24) → FY25 cash margin (26.8% of OCF) is depressed. The model uses the normalized margin (~30% of OCF), consistent with FY23-FY24 and the TTM.
• Accounting distortions to watch. Book equity is low (~$106bn) because of accumulated buybacks, not weakness; the business generates far more cash than the balance sheet suggests.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The value engine is the mix shift toward Services: it carries ~75% gross margin against ~37% for hardware, so every point of revenue that moves toward Services lifts the consolidated margin. The iPhone (~50% of revenue) is the installed base that feeds those recurring Services. The massive buyback shrinks the share count and compounds per-share value.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (27-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real growth, not nominal. Yes — +6% FY25 in USD from units and price; the acceleration to +17% in the first half of 2026 has a China-recovery and easy-comparison component.
• Where the engine comes from. Services (~26% of revenue) grows +14% and is the engine; the iPhone (~50%) grows in the low single digits; wearables are contracting. This is mix-driven growth.
• Driven by volume and price. Hardware via units × price (mature); Services via installed base × monetization (growing) — the second lever is the quality one.
• Realistic deceleration. The projection starts from the TTM — the latest reported figure, with China's recovery and the iPhone 17 already in it — and decelerates +5.4% → +4.5%: the recent acceleration is not extrapolated, it is already in the base.
• Reinvestment runway. Limited: the business needs little capital (capex ~3% of revenue); the runway is Services and AI, not large capital reinvestment.
• The Google payment. ~$20 billion a year (almost all margin) within Services is at risk from antitrust — a front that could stall growth in the most profitable segment.

• Relevant in 10 years / recurrence. Yes — the smartphone is a universal daily habit and the ~2,350M-device installed base generates recurring Services; the risk is device form factor, not relevance.
• Market share / cost position. A minority volume share, but with product gross margin and average selling price well above those of a volume manufacturer; it is not the lowest-cost producer, it is the highest-value one.
• Pricing power. High: the brand sustains a premium price and exceptional loyalty; Services raise prices with low churn.
• Operating leverage. Moderate in hardware; high in Services (~75% gross margin) — the mix shift toward Services is the consolidated-margin engine.
• Capital cycle / competition. Intense hardware competition (Samsung, Chinese makers), but the ecosystem and brand protect the premium; the risk is regulation forcing interoperability.
• Recession behavior. Premium hardware is somewhat discretionary (the upgrade cycle stretches out in recessions), but recurring Services provide defensiveness.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $61.9 bn
• ✓Interest coverage (EBIT / interest)39.7x
• ✕Liquidity (current ratio)0.94×
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 102% of ROIC
• ✓Value creation (ROIC − 10% bar)+45pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 2.9% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash. Cash and investments of $146.6bn against ~$85bn of debt → positive net cash (~$62bn); book equity is low because of buybacks, not weakness.
• Ample coverage. Interest expense (~$3.9bn) is trivial against operating income ($147bn TTM) — dozens of times coverage.
• Enormous cash generation. ~$129bn of FCF a year with very low capex: covers the buyback and dividend with room to spare and leaves a surplus.
• No maturity wall. Debt (~$85bn) is spread out over time and low for Apple's size; cash generation covers it many times over.
• Favorable working capital. Apple operates with negative working capital (suppliers finance the operation) — a superpower that lifts return on capital.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. A capital-return machine: buybacks ($90.7bn gross in FY25) plus dividends (~$15.4bn), with very low capex and almost no M&A. Correct for a mature business with an extremely high return on capital.
• Alignment / skin in the game. Professional CEO (Cook), <1% ownership, no founder control or dual-class shares. Alignment via stock compensation; real shareholder checks and balances (dispersed ownership).
• Buying back at a good price. The buyback is enormous and consistent (~2% of shares a year, net of compensation), but executed at a rich multiple — it adds per-share value, though less than if bought cheaply.
• Integrity / communication. Sober and consistent communication; the filing does not give numeric forward guidance (that is reserved for earnings calls), but capital allocation is transparent.

• It is not cheap — and is probably rich: there is no clear source of discount (neither missing buyers nor motivated sellers); it trades at a defensive-quality premium to peers.
• The market pays Apple for certainty — a predictable business, an unmatched brand, a giant buyback — with a multiple (~43× owner-FCF) that discounts very little risk.
• The recent acceleration (+17% in the first half of 2026) reinforces the perception of strength, but rests on China's recovery and an easy comparison, not a structural trend.

Unlike a discount-based value thesis, here perception and reality are aligned — or perception is somewhat better than reality: Apple is a great business, but the price already reflects that quality. This is a pricing case, not an opportunity.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -10%/year (-40% total): the margin of safety protects the downside. The bull (+4%/year, +22% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• The Google payment (Services). ~$20 billion a year (almost all margin) for default search on Safari, at risk from the antitrust case on appeal; an adverse outcome hits Services profit directly.
• Rich valuation with no margin. At ~43× owner-FCF for mid-single-digit growth, the risk is the price itself: multiple compression can produce a poor return even from a good business.
• iPhone concentration. ~50% of revenue depends on a single product; a plateau in the upgrade cycle hits revenue and margin.
• Greater China plus geopolitics. Local competition (Huawei), tariffs, and a supply chain concentrated in Asia; Greater China is the most volatile market.
• App Store regulation. The European Union's Digital Markets Act and the Epic ruling (no commissions on external purchases) erode App Store monetization.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 55% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 7.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 55% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 15% vs our 6%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -10%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: switching costs, intangibles, cost advantage, network effects, efficient scale → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 15% growth, far above our 6% — heroic assumptions.