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

Core Insights - Apple Inc. (AAPL) reported an 8% year-over-year revenue increase for the quarter and fiscal year ending September 27, 2025, with a free cash flow (FCF) surge of 10.8% year-over-year to nearly $99 billion, indicating strong financial performance and potential for stock price appreciation [1][5]. Revenue Performance - AAPL's product and service revenue rose by 7.94% to $102.466 billion, with service revenue reaching a record $28.75 billion, accounting for 28% of total sales, reflecting a strategic shift away from overdependence on iPhone sales [3][4]. - For the full fiscal year, AAPL generated approximately $98.767 billion in free cash flow on total revenue of $416.16 billion, resulting in a FCF margin of 23.74% [5]. Free Cash Flow Analysis - The free cash flow for fiscal Q4 was $26.486 billion, representing a 25.85% margin on sales, despite an 11.5% year-over-year increase in capital expenditures [4][6]. - Analysts project revenue for the year ending September 2026 to rise by 8.8% to $452.9 billion, with a further increase of 5.7% for the following fiscal year, leading to a forecasted free cash flow of $118.7 billion if the current FCF margin persists [6]. Stock Valuation - Based on a 25% FCF margin and a 2.5% FCF yield metric, AAPL stock could be valued over 20% higher, with a price target of $325 over the next 12 months, compared to a closing price of $270.37 on October 31 [1][6].