Those two had long discussions in the last two threads. People are comfortable betting on CASYs future growth rate. There is a very strong
reluctance to do the same for APPL and for understandable reasons. Such torrid growth is rarely sustainable for such large company.
However, lack of confidence in future growth does not automatically means we have to give up and walk away. We could relax the assumptions to a comfort zone and proceed from there. Suppose AAPL does not grow earnings from here but keeps it steady at $50B per year. Zero growth. What value would you put on it?
If I offered you to buy a business that makes $1M profit every year, but is showing zero growth! How much you you be willing to pay for it? Most people would jump on it at a price tag of $1M because the break-even is one year. Nobody would pay $100M for it because it will take 100 years to recoup your investment. But, somewhere between the two extremes, this business has a value. What is it? Would you pay $7M for it?
A lot of the PEG analysis we do here is essentially the same, without implicitly calling it break-even analysis. We cannot deal with zero growth because if the G in PEG is zero, we cannot divide by zero.
Let’s switch to break even analysis. If we assume that CASY will grow earnings at 25% forever, it will take CASY about 10 years to generate enough cash to “recover” the current Enterprise Value of CASY. (Back of envelope calc. Not exact numbers.)
APPL TTM profits are $50B. If you net out the cash you get EV of ~$600B. At the current rate of profits, with zero growth, it will take 12 years to break even on APPL.
I own both AAPL and CASY and like 'em both. However, since their break-even is similar, it is safer to go with the zero growth assumption on AAPL than 25% growth (long haul) on CASY.