Investors Just Don’t Get It With Apple


Stock (Symbol)

Apple (AAPL)

Stock Price


Data is as of
November 3, 2016
Expected to Report
Jan 24 – 30
Company Description
apple_grand_centralApple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’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. It sells its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added re-sellers. Source: Thomson Financial
Sharek’s Take
David SharekApple’s (AAPL) backers really don’t understand that growth has slowed and it’s very unlikely that the stock will lead the market in the near future as the company doesn’t have a great new product to provide a catalyst for profit growth. Did you know AAPL’s earnings peaked two years ago? The company just finished 2016 on September 30th and made $8.31 in earnings per share for the year. The high-water mark was set in 2015 when it made $9.22. Now the company is expected to make $9.04 this year (fiscal year 2017). Folks, that’s not growth. Analysts at least agree on that point, and give AAPL an Estimated Long-Term Growth Rate of 9% per year. Still, they (analysts) don’t think AAPL will have record profits again until 2018, and that figure has declined from $11.02 to $10.07 the last 4 qtrs so knows what it will end up at. Even when Apple was in growth-mode, investors didn’t give the stock a high P/E ratio. From 2011 to 2015 the median P/E was between 12 and 14. So now with profits down 15% last qtr how can you expect a higher valuation? My Fair Value is 13x earnings, which is $118 a share for 2017 and $131 a share for 2018. Apple gets most its revenue from hardware items such as the iPhone (63% of 2016 sales), iPad (10%), Mac (11%) and other sales like AppleTV, Apple Watch, accessories, etc (5%) whereas only 11% of sales come from services. This is a mature tech hardware company and is going down the road Dell, Nokia, and even RCA have already paved.
One Year Chart
aapl_2016_q4The stock chart has an odd look to it, and I don’t have a feel for where AAPL will go next. There is resistance at $120 and support at $90. Last qtr AAPL had profit growth of -15% as sales declined 9% from a year ago. The company beat the street by 3 cents, but estimates had declined 59 cents in the qtrs leading up. Looking ahead, estimates have been stable for the last 2 qtrs, so at least they aren’t declining anymore. Qtrly profit Estimates for the next 4 qtrs are -2%, 13%, 20% and 16%. Don’t get excited about the accelerated growth, as comparisons are easy. For instance, 3QtrsOut the estimate is for 20% profit growth. The profit estimate is $1.71 which is less than the $1.85 made two years earlier.
Fair Value
aapl_2016_q4_phThis stock has come down from $118 to $112 since the company reported profits last week. People felt Apple should have had a better qtr — and increased profit estimates — as its biggest competitor Samsung has phones which catch fire and aren’t even allowed on airplanes (that’s bad). Thus AAPL’s P/E has fallen a bit from 13 to 12. But the stock market has been down 7 days straight, so a return to the norm could be in store. Still, in the end I feel this stock will be around $118 for 2017. That’s a year folks.
Bottom Line
aapl_2016_q4_10yrApple has been an incredible stock for the past decade, but now both profits and the stock price are now stuck in neutral. I feel in the end smartphones and tablets are no longer growth industries and the company needs a new catalyst to propel it forward. Right now there’s nothing on the horizon as tApple is floundering with its electric car strategy. AAPL isn’t a growth stock anymore, and the only reason I follow it is for entertainment purposes.
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