Apple Breaks Out After Posting 30% Profit Growth

Stock (Symbol)

Apple (AAPL)

Stock Price

$185

Sector

Technology

Data is as of

May 8, 2018

Expected to Report

Jul 30

Company Description

Apple’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also sells and delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. Source: Thomson Financial

Sharek’s Take

Apple’s (AAPL) broke out to a new All-Time high this month after delivering 30% profit growth last qtr. Sales growth accelerated from 13% to 16%. The company increased its stock buyback program by 100 million and also increased the dividend 16% (the yield is now close to 2%). With a P/E of only 16, this stock has the room to move higher. AAPL should have a P/E of 20, but it’s been saddled with a low P/E for many years. Why? Because Apple is a hardware company that depended on new products to boost profits (and if those new products weren’t around profits declined). But now service revenue grew 31% last and now makes up a solid 15% of total sales (this was <10% of sales just a couple years ago) so investors can feel this is more of a well rounded company. Paid subscriptions (like Netflix) were 270 million last qtr, up from 170 million a year-ago. AAPL has an Estimated Long Term Growth Rate of 13% a year, in addition to a yield of close to 2%. The P/E is 16 and I have a Fair Value P/E of 17, which may be too low to be honest. But again, let’s see if the company can earn a 17 P/E before I think it can go to 18. What’s nice is Apple’s fiscal year-end is September 30th, which means I will be looking ahead to 2019 numbers next qtr. Right now my 2019 Fair Value is $225 a share — 22% higher than the recent quote. Not bad for a relatively safe stock. I think this stock has what it takes to push past $200, and this month’s breakout may be the beginning of that move.

One Year Chart

Nice looking stock chart! Good profit growth every qtr during the past year, and Estimates for the next 4 qtrs are for 31%, 28%, 21% and 10% profit growth the next 4 qtrs. Those are good figures (the 4QtrsOut est. needs time to cook). One a negative note, 2018 profit estimates decreased a but this qtr, as did estimates for the next 2 qtrs. But 2019 and 2020 estimates increased. Nice low P/E of 16.

Fair Value

Note the back-to-back non-record years in 2016 & 2017. As well as 2013. Those are why AAPL doesn’t have a high P/E. That and Dell. And Nokia. Those hardware companies went from growth to no-growth and the stocks followed. But AAPL is making new highs profit-wise, so that’s good. My current Fair Value is slightly more than the recent quote. But Apple could be headed past $200.

Bottom Line

Apple has had its ups-and-downs the past decade, but notice on the ten-year chart you could put a nice trendline along the tops of this move. With that being said, this stock likely won’t be off to the races here. Still, I think this recent breakout is real as a lot of tech stocks have been basing recently — as if they were getting ready to run. With solid profits, a low P/E, and good intangibles like a dividend and stock buyback program, AAPL has what it takes to push higher. AAPL ranks 10th in the Conservative Growth Portfolio Power Rankings and 17th in the Aggressive Growth Portfolio/Growth Portfolio Power Rankings. I think the negativity towards the stock is “fake news” to entice people to sell.