When you say "intrinsic value" are you referring to book value? As in; their office building, patents, etc.? Also, how on earth is the stock overpriced?
I'm talking about operating value... current assets minus current liabilities plus projected operating cash flows several quarters forward, discounted to net present value using the weighted average cost of capital (WACC) as the discount rate.
Book value is total assets minus total liabilities and intangibles. But some calculations of intrinsic value define it as book value plus total projected cash flows. I think we had this discussion in another thread... How many golden toilets Apple puts in the executive washroom doesn't improve their ability to generate operating cash flow...
The stock price is still in excess of per share operating value.... doesn't matter how one tries to emotionally justify a purchase: Paying 60 cents for a dollar is always better than paying $4 for a dollar.
----------
No, I read one of his comments before, he looks at the discounted value of future cash flows. Technically that is true, but if he uses some form of DCF, he's likely way off, so I wouldn't worry about what he says. (1) you have to predict future cash flows, something no one can predict with certainty for Apple, (2) the discount rate he uses could be the WACC, which relies on beta, making the rate unreliable. The range of margin of error is +-100%. DCF is more like a guess, just look at analysts' predictions.
I prefer looking at the franchise value, similar to DCF, but with no predictions. Buffett says intrinsic value is the sum of cash flows the owner could expect to receive in the company's lifetime, discounted at an appropriate rate. I'm 100% certain I know how he values a business after reading his essays and watching him talk about valuation. The problem is the uncertainty with Apple's earnings. Their balance sheet is solid though. Here are two scenarios: if Apple earns their last 3 year's earnings average for the next decade, then the stock is undervalued. If they earn their last 4 year's average for the next decade, the stock is not a good price to buy because, like that other said, it has a small margin of safety that doesn't make the stock worth buying.
I wouldn't say the margin of error is that high, because I'm not using completely imaginary numbers and I take WACC with a bit of a grain of salt because of its use of beta (actually more so because cost of capital is not a constant as a company scales, but that's less unstable for a mature company like Apple whose cost of capital will not change very much).
Forecasts are not dart throwing... My current role involves numbers that roll up to finance and accounting and pretty rigorously tested formulas on customer retention to get the "where might we land" scenario... It's not magic. It's arithmetic. We know what our funnel looks like. The other driver is the pressure that sales organizations have to meet those projected numbers, so unless something goes horribly wrong with operations, supply chain management, etc. on so many levels, every company of this scale has a pretty good idea of where they will land for the next four or five quarters.... they just don't always tell you until it's legally required of them.
That said, on the off chance that there's a little bit of variation in the result, that's what picking a wider margin of safety is for. Where I don't feel as confident about the variables involved, I err on the side of caution and enter at an even bigger discount. I'm not chasing maximum returns but optimal returns with minimal risk... Any number times zero is still zero.
I'm not trying to tell you a "target price" when I discuss these things... It's not a projection of "what will the stock do in x months" but rather a triangulation conservative scenarios that give me a comfort level about a purchase. The wider the margin of safety, the less likely I'm exposing myself to catastrophic risk.
Again... Why pay $5 for a dollar if you can get it for sixty cents? The value proposition is one where, as Buffett famously said, the less the risk the larger the reward.
