I Was Wrong About Apple, But I Still Think You Should Sell It

Stock (Symbol)

Apple (AAPL)

Stock Price


Data is as of
February 13, 2017
Expected to Report
Apr 24 – 28
Company Description
Apple 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 SharekI was wrong about Apple (AAPL) stock, but I still think you should sell it. I think there are a few reasons why AAPL has gone from a low of $90 last July to more than $130 now, with the main being the P/E was 11 then (too low) and is 15 now (more appropriate). Second, AAPL is the largest stock in the market, and with the stock market and tech stocks racing higher a lot of money flowed AAPL’s way systematically via ETFs and S&P 500 index funds. Third, service revenue was up 9% and the thought is if the company can have a dependable revenue stream then it will get a higher valuation (P/E). There was a lot to not like about this last earnings report, starting with sales growth of 3% and profit growth of 2%. And although the company beat the street by 14 cents, NxtQtr’s estimate fell by 14 cents and the 2QtrsOut estimate fell by 9 cents. Apple made $9.22 in 2015 and in 2017 is expected to make $8.95 — that’s not growth folks. It’s also expected to do $228 billion in sales, again less than the $233 billion it did in 2015. In the end, the real reason AAPL stock has gone up is the P/E went from 11 to 15. Assuming it will continue to 19 is just hoping at this point. I think this stock is good as profits look to grow 11% on average the next 4 qtrs, but my 2018 Fair Value is just $142 and that’s only 7% away (+2% yield). I just think can make better investments in Internet stocks.
One Year Chart
For the 2nd straight qtr I’m saying this chart has a weird look to it. Especially the last two months as the stock’s risen without much of a pullback at all. Last qtr, iPhone revenue was up 5% but iPad sales were down 22%. What’s good is that service revenue. Also, qtrly profit growth Estimates shows 6%, 14%, 15% and 8% the next 4 qtrs. AAPL would get some good headlines with 15% growth and a 15 P/E. BTW these profit numbers for the last 4 qtrs are not cool.
Fair Value
So if I put a Fair Value of 14x earnings on this stock (profit growth hasn’t been all-that the past couple years) that gives me a $125 Fair Value for this year and $142 for next year. The stock’s right in the middle of that now. AAPL ends its fiscal year in September, so we will look ahead to 2018 starting this summer.
Bottom Line
I’ve been too negative on Apple the past couple of years, and have watched the stock rise and leave me behind. But when I look at the numbers, I’m just not impressed. Annual Profit Estimates aren’t moving higher, and really profits haven’t been either. You have to go back to 2010 when the stock got a higher P/E than 15. I just think AAPL will simmer down and provide investors with around 10% total return a year long-term. That’s OK if it’s a safe dependable stock, but this is still a computer hardware company that’s not had profit growth since 2015. I’m keeping AAPL on the Conservative Radar (Est. LTG not enough for the Growth Portfolio), and think this is a good time for investors to take profits.
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