Tuesday, August 13, 2013

Sum of Parts Valuation Analysis for Apple from Needham

Sum of parts is greater than the whole - when one gets an indication that company as a whole is not priced fairly, break the company down into parts and apply sum-of-parts valuation.

The sum-of-parts valuation approach Needham used below to value Apple is my favorite one.  This approach breaks down the organization into parts and applies separate valuation model using different growth assumptions, challenges and steady-state values to arrive to an appropriate LTV.  In this approach, the fastest growing businesses can fetch aggressive growth rates while slower or steady business get more moderate assumptions.

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