Apple recently opened its first flagship store in Singapore right in the heart of Orchard shopping belt. I had to go check it out. The store design concept is experiential probably with a few key objectives like educating, wooing and influencing consumers.
You can buy stuff from the store as well but I didn’t buy anything as my purpose was to check it out as part of my research.
I am re-looking at Apple and thinking of owning a piece of the business.
Apple Stock Performance
Apple’s revenue and earnings have been growing tremendously over the last ten years and the market has rewarded its share price which has also increased from about $10 to where it is today about $155.
The million dollar question is: Will Apple still continue to grow like before and the share price trajectory over the long term will be similar?
Let’s take a look at the financials.
Notice the 2 dips in the stock price mid of 2013 and mid of 2016 were because of the decrease in EPS.
Not too recently, when the revenue and earnings slowed and iPhone sales was down, many analysts gave very negative outlook for Apple.
However, Warren Buffett’s Berkshire Hathaway bought into the company since mid of 2016 and added more holdings recently. Warren Buffett himself felt that Apple has very “sticky” products.
My Simple Man Analysis
You can make use of the Stock Investment Framework to carry out a full analysis of Apple. Apple just announced some new products and innovations during the recent WWDC 2017 event. I will summarize a few observations from my analysis:
- The financials are great (return on equity >30%, return on capital >20%, powerful cash generation engine, low debt)
- Apple is giving returns back to shareholders in the form of dividends and share buyback
- Products continue to improve and there are some new innovations including foray into augmented reality, but they don’t seem revolutionary
- I like that Apple has a very strong moat in terms of branding and switching cost
I am concerned about whether the company is growing top line and bottom line lately, so we look at the latest 2 quarters.
Apple seems to be growing both revenue and EPS, but I am not entirely sure of the growth rate moving forward and where the growth areas are going to be.
There are just so many iPhones you can sell and Apple has very formidable competitors in all fronts, smartphones, tablets, laptops etc.
At this moment, it is at least reassuring revenue and EPS are picking up again. The fact that they are paying dividends and buying back shares may or may not signal that they think future growth is not going to be tremendous.
I use many of Apple’s products myself and their products still command a pricing premium. However, I think they have lost some of their shine and coolness. My latest purchase of a laptop is not a Macbook but a Microsoft Surface Pro!
So, do you think Apple is still a growth stock? And would you go into the market and buy up some shares now?
Personally, till I see some further innovations and vision of future disruptive technology or business model coming out of Apple, I will think of Apple as very fundamentally sound company with some growth. That way, I already build in my own margin of safety and my valuation of the company will be based on my expectation of return based on its steady EPS.
Looking at the technical chart and Apple’s historical EPS, I would be happy to consider if the price retracts back to $115 level.
The thing about technology stock is that things move very fast. I have no doubt Apple is going to be at the forefront of technology innovations but I will also closely monitor the growth markets like China, India etc. Many of their existing markets are saturated, so growth is going to come from new markets or new products.
In conclusion, I love the company and its products but that’s no reason to buy the shares. The share price is not cheap now, and I will wait for the right time!
I have chosen to share a video from a year back so you know the share price can be beaten down again if earnings expectation is not met, there are some interesting discussions too around acquisition, new areas like connected cars, living room ecosystem etc. I definitely won’t buy Apple shares now when it is trading all time high.
At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.
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