Apple’s Free Cash Flow Surges, Implying AAPL Stock Could Be 20% Too Cheap

Apple Inc.’s (AAPL) revenue was up 8% YoY for the quarter and fiscal year ending Sept. 27, 2025. Its free cash flow surged 10.8% YoY to almost $99 billion and up 8.5% QoQ. As a result, using a 25% FCF margin and a 2.5% FCF yield metric, AAPL stock could be worth over 20% more.

That puts AAPL on a price target of $325 over the next 12 months (NTM). AAPL closed at $270.37 on Friday, Oct. 31. This article will explain the AAPL price target.

Apple reported that its product and service revenue rose 7.94% to $102.466 billion. Moreover, its service revenue reached a record $28.75 billion, accounting for 28% of total sales. Apple has been trying to get away from its overdependence on iPhone sales, which hit an all-time high in the September quarter.

As a result, its cash flow surged. For example, free cash flow (FCF) hit $26.486 billion in its fiscal Q4 for the quarter ending Sept. 27. That was up 10.8% over last year’s $23.9 billion, according to Stock Analysis.

Moreover, that FCF represented a 25.85% margin on fiscal Q4 sales of $102.466 billion. This was even after its capex spending rose 11.5% YoY.

For the full fiscal year ending Sept. 27, Apple generated almost $99 billion in free cash flow (i.e., $98.767 billion) on revenue of $416.16 billion for the year. That represented a slightly lower FCF margin of 23.74% (i.e., $98.8b / $416.2 b), due to lower Q1 and Q2 FCF margins.

As a result, we can forecast strong FCF going forward.

For example, analysts are now projecting that revenue for the year ending Sept. 2026 will rise 8.8% to $452.9 billion and up +5.7% for the next fiscal year to $477.97 billion.

So, the next 12 months (NTM) revenue forecast is:

(0.75 x $452.9b) + (0.25 x $477.97b) = $339.675b + $119.4925b = $459.1675 billion NTM

As a result, if we assume that the fiscal Q4 FCF margin of 25.85% persists throughout the next year:

0.2585 x $459.2 billion NTM sales = $118.7 billion FCF

That would be almost 20% higher than the $99 billion it generated for the year ending Sept. 27, 2025. This could lead to a significantly higher stock price.

For example, with Apple’s $4 trillion market cap as of Friday, the FCF represents a 2.469% FCF yield (i.e., $98.767 billion FCF/$4,000 billion = 0.02469).

So, applying this to the NTM FCF forecast:

$118.7 billion / 0.02469 = $4,808 billion market cap

That represents a 20.2% gain over its existing market cap of $4 trillion.

In other words, the price target is 20.2% higher:

$270.37 x 1.202 = 324.98

In other words, the rounded price target is $325 per share.

One way to play this is to set a lower potential buy-in point by shorting out-of-the-money puts. That way, an investor can get paid while waiting to buy AAPL at a lower price.

For example, the $260 strike price put option for the Dec. 5 expiry period has a $3.53 midpoint premium. That exercise price is 3.8% below Friday’s close and represents an immediate yield for the short-seller of these puts of about 1.36% for the next month:

$3.53 / $260.00 = 0.013576 = 1.358% one-month yield

This allows the investor to potentially buy into AAPL at $360 – $3.53, or $256.47, or -5.14% below the Oct. 31 trading price, should AAPL fall to $360.00 over the next month.

The risk, on the downside, is that AAPL could fall further than the $256.47 breakeven. That could potentially result in an unrealized loss.

However, note that the delta ratio is low at just -0.27. That implies just a 27% chance that AAPL will fall to $260.00 over the next 34 days, even though it’s only 3.84% below Friday’s close.

Moreover, even if this occurs, the investor could always do another short-put trade. Or the investor could sell out-of-the-money covered calls to help mitigate any unrealized loss.

In addition, the upside from owning shares at the breakeven price of $256.47, given my $325 price target, would be even higher – i.e., +26.7%.

The bottom line is that AAPL stock looks at least 20% too cheap here. One way to set a lower buy-in point and get paid while waiting for this to happen is to short out-of-the-money put options in one-month away expiry periods.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com