Apple is talked about almost daily if not hourly, so I figured I would put in my two cents. Apple was founded on April 1st, 1976 by Steve Jobs and Steve Wozniak in a Garage in California. Since then there has been many trials and tribulations, some of which almost brought Apple to bankruptcy. Today Apple in is in a different position, the top of the consumer technology industry. Some people see the unexpectedly high share price and assume it is a very expensive stock, that is simply not the case and here is why.
Based on Share Price of 571.75
P/E Ratio: 12.9
Price to Book: 4.5
Price to Sales: 3.5
Price to Cashflow: 10.6
Dividend Yield: 0.9% ($2.65 per share)
Based on next years earnings with growth factored in AAPL is trading at a forward P/E of 9.3
B/V per share: 125.66
During the most recent quarter 26.9 million iPhones were sold (58% Y.O.Y growth), 14 million iPads sold (26% Y.O.Y growth), 4.9 million Macs (1% Y.O.Y growth), and 5.3 million iPods (19% Y.O.Y unit decline). Earnings before tax margin has been continually expanding over the most recent 9 years. There is speculation margins will be effected after renewing their new product line but consumer price point levels will be maintained and margins will return to the equilibrium (roughly 35%) short to medium term. iPhone and iPad sales are continuing to impress, although missing some analyst expectations the growth is still much intact.
- Almost all money managers/hedge fund managers have exposure to Apple and it is heavily weighted in the Nasdaq, QQQ, and SPY.
The 10-year revenue growth average is roughly 39.10% and a 10-year operating income average of 124.48% both are extremely impressive. Some say Apple is running into the law of large numbers and can not continue to grow at these rates. Although I some what agree with that statement, I believe Apple will continue to grow, only at a slower pace. Apple has a mind-blowing 2012 ROE of 42.8% attributable to alpha of management.
That brings us to the current share price. Apple is worth 550 Billion measured by market cap, and may be the first to 1 Trillion. Although it will take time and predictable growth it can be done, but the bulk of shareholder gains will come from distribution in the form of dividends and share buy-backs. Apple is a company worth holding but at what price? Long-term trend lines show support around the 510 and 490 price levels as well as a 200 day moving average at $594 (resistance). I would suggest we are in a trading range until $595-$600 is broken on volume. As a longer term holding I would aim to buy in the 495-515 range and hold the shares until Apple’s growth starts to run out of fuel. I would suggest a 3-5 year price target of $900 and a 1 year target of $650. Consider buying up to $575 but the higher price you pay comes with a lower margin of safety and lower expected returns.
You must conduct your own research, know your risks, and always do your due diligence before investing or trading.
Disclosure: I have no positions mentioned but my initiate a position in the next 72 hours.