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Mature Apple’s (AAPL) Numbers Aren’t Looking Too Good

August 16, 2022 / By /
Stock (Symbol)

Apple (AAPL)
Stock Price

$165
Sector
Technology
Data is as of
August 9, 2022
Expected to Report
October 26
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 (AAPL) is expected to have slow profit growth for the forgeable future, which makes me think the company has matured. Analysts 9% profit growth this year, 5% next year, and 5% in 2024. Wow, that’s just 6% growth. That’s not much growth. It’s certainly not growth stock material, not in my book. LAst qtr the company delivered -8% profit growth on 2% revenue growth. In the end, it seems like this stock will be a slow grower for years to come.

Apple designs, manufactures and markets smartphones, personal computers, tablets, wearables. accessories, and related services. Services include advertising on its platforms, AppleCare technical support, as well as the App Store for customers to download applications and digital content such as books, music, games and podcasts. The company also offers payment services including a co-branded credit card Apple Card, and a cashless payment service called Apple Pay. Apple has recently made changes to its iOS 14.5 asking people if they want to opt-out of apple tracking them across the Internet, and this has hurt social media companies like Facebook as it made it harder for advertisers to track purchases. Here’s some AAPL stats from last qtr:

  • iPhone (49% of total company revenue): +3% sales growth.
    Growth was due to strong customer reception to the new iPhone 13 models and all-time high iPhone installed base.
  • Services revenue (21% of sales): +12% year-over-year growth.
    Robust sales growth was due to sustained increase in installed base and higher user engagement.
  • Wearables, Home and Accessories (11% of total sales): -8% growth. 
    Decline in sales was due to foreign exchange pressures, different launch timing of Home and Accessories products, and supply chain challenges.
  • Mac (10% of company sales): -10% growth.
    Apple had strong demand for Macs. In May, Apple introduced a new Macbook Air and Macbook Air Pro, both powered by the next generation M2 with a faster CPU and GPU. In March the company launched the Ma Ultra, the world’s most powerful chip for a personal computer. Last qtr, Mac sales was negatively affected by supply constraints.
  • iPad (9% of AAPL sales): -2% revenue growth.
    The company continued to see strong demand. Revenue decline was due to supply constraints and foreign exchange headwinds. Over half the customers that bought an iPad during the qtr were new to the product.

AAPL is a safe stock with an Estimated Long-Term Growth Rate of 10% a year, and a dividend yield of less than 1%. The low Est. LTG takes this out of the “growth stock” category for me. Management also buys back billions in stock. The company has reduced the share count 37% since 2013 (source: Squawk on the Street 11/17/21). Last qtr, management declared $0.23 cash dividend per share, payable in August this year, to shareholders. This was a 5% increase over last year. AAPL is part of the Conservative Growth Portfolio. This weakness the company is seeing might be short-term, as people spent a lot on computers the past two years. But for now, it seems like Apple has finally matured.
One Year Chart
AAPL fell out of bed last qtr during the Bear Market we just had. But the stock quickly recovered. Last qtr, the P/E was just 22. Now that’s on 2022 profit estimates. Since we are now in AAPL’s Fiscal Q4, I’m using 2023 profit estimates to calculate the P/E, which is now 27. The stock was a better deal last qtr.

The Est. LTG of 10% is decent for a conservative growth stock, but its not the 20% growth I like for a traditional growth stock.

Notice qtrly profit growth is poor. 
Earnings Table
Last qtr, AAPL made -8% profit growth but beat estimates of -11% growth. Revenue increased 2%, over last year. Product sales (76% of company revenue) declined 1% and Services (24%) grew 12%.

Gross margin was down to 43.3% from 42.9% last year due to effects of seasonal cycle and unfavorable foreign exchange rates. Revenue slowdown was driven by supply chain constraints, foreign exchange headwinds, and high inflation. Despite these bad news, the company achieved all-time high in installed active devices and user engagements.

Annual Profit Estimates have declined, this qtr. Note the top part of the Earnings Table is all green, and the bottom is mostly red.

Qtrly Profit Estimates are for 7%, 0%, 0%, and 8% growth the next 4 qtrs. Management expects revenue to accelerate next quarter. In Products, the company expects lower supply constraints next qtr, but in Services management expects revenue growth to decelerate.
Fair Value
AAPL was incredibly undervalued a decade ago. The stock’s median P/E was 12 to 13 during fiscal years 2011-2016 and then it was 16-17 during 2017-2019. In 2020 the median P/E jumped to 29.

Looking ahead, I feel this stock is worthy of a 25 P/E, which equates to $161. Note, since AAPL has a fiscal year-end of September 30th, we are now looking ahead to next fiscal year (2023) to calculate upside, or in this case downside.
Bottom Line
Apple (AAPL) stock had been a sensation during the past decade. But as we saw above, a lot of the growth came from the P/E rising, as profit growth was just 14% during the past ten years.

Today’s Apple is more mature, and that means slower growth. Management kept blaming supply chain constraints in the earnings call. But Services revenue was 12% last qtr and is expected to slow this qtr. So in the end, this seems like a 10% grower, not the growth stock it used to be.

AAPL slides from 6th to 20th in the Conservative Growth Portfolio Power Rankings. 
 Power Rankings
Growth Stock Portfolio

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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