Apple stock investment model - DDM

As a dedicated user of Apple's products and services, from the Mac mini and Mac Air to the iPad, iPhone, and various accessories, my affinity for the brand extends beyond mere consumption. I've consistently invested in Apple shares, and thus far, the returns have been commendable. However, with Apple's market cap now hovering around the 3 trillion USD mark, I'm grappling with a conundrum: Does Apple still have room to grow, or has it become too colossal to achieve significant further expansion?

One thing I know for sure is assessing the future trajectory of a stock's price is a complex task and inherently uncertain, as it depends on a multitude of factors, both internal (company-specific) and external (market and macroeconomic factors). However, there are several methods you can employ to gauge the potential future movement of Apple's stock and determine if it's overvalued or undervalued.

Hence, I am doing research on Apple’s investing model and want to learn and review it as a reference.

Today’s model is, DDM Multi-Stage or Multi-Stage DDM.

The Dividend Discount Model (DDM) is a fundamental valuation method used to estimate the value of a stock by considering the present value of expected future dividends. The basic premise behind the DDM is that the intrinsic value of a stock is equal to the present value of all its future dividends.

As the name suggests, the Multi-Stage Dividend Discount Model is an extension of the basic DDM, designed to account for varying dividend growth rates. Many companies don't have a constant growth rate of dividends; instead, they might experience high growth for a few years before settling into a more stable, mature growth rate. The Multi-Stage DDM can capture this.

Types of Multi-Stage DDM:

Two-Stage DDM: This is the most commonly used version. In this model, a firm is expected to have an initial phase of high growth followed by a perpetual phase of stable growth. The model first calculates the present value of dividends during the high growth phase and then calculates the present value of dividends from the stable growth phase (often using the Gordon Growth Model for the stable phase).

Three-Stage DDM: This model adds an additional transitional growth phase between the high growth and stable growth phases. The transitional phase represents a period where the growth rate is declining but is not yet at its perpetual, stable level.

Now, we can ask questions – Does it make sense to apply this model to Apple stock?

While it would not be the best model, it will be worthwhile to apply this model as one of the references.

Apple started paying dividends over the last 10 years, and growth and capital allocation are well-known to the public.

Given these factors, if you decide to use a DDM for Apple:

Two-Stage DDM: This could be a reasonable approach if you believe Apple is transitioning from a high growth phase to a stable growth phase. The high growth phase would capture the current growth spurred by its product ecosystem, while the stable growth phase would reflect its position as a mature tech company.

Three-Stage DDM: This might be more appropriate if you believe Apple will experience an intermediate phase of decelerating growth between its high growth and stable growth phases. For instance, you might think that Apple's current innovations will spur growth for a few years, after which it will transition to a phase of slower (but still significant) growth before finally settling into a long-term stable growth phase.

In conclusion, two or three-stage DDM is also based on your assumptions and perspectives to see the company.

What is the price based on multi-stage DDM?

Multi-stage DDM price is around USD 157

DDM stable growth model price is around USD 140

These prices are just references, the stock price has a lot more factors to consider such as sentiment and economics industry forecasts, etc. Apple stock has a good potential imo!