Company Overview
Short version: They make iPhones.
Long version: Apple Inc designs, manufactures, & markets mobile communication & media devices, personal computers, & portable digital music players, & sells a variety of related software, services, accessories, networking solutions, & third-party digital content. (Morningstar.com)
**Note: All numbers come from Apple’s financial reports and probably are not completely up to date, but they more or less get the jist of it
Bull Case (Catalysts) 1. Apple is selling at a p/e of just under 15 (open for interpretation, see bear case) thus at least we can say it is at least reasonably valued. The main short term catalyst for the stock is the cash on its balance sheet. Apple has just over $230B of cash and $70B of debt. Even after subtracting debt from cash, they have about $160B in cash. Why does this matter? Imagine finding a stock that you think is reasonably valued at a p/e of 12 (on p/e alone you might buy it). But then you find out that it also comes with $4 cash/share. That comes like a bonus and it essentially makes the stock $4/share more valuable (intrinsically). But the problem is that over 90% of the cash is overseas. The good news is that Trump has promised to allow for repatriation of overseas cash at a low tax rate. Apple has approximately $43/share (or $30/share minus debt) in cash.
- The iPhone 8. The bulls say that the 10 year anniversary rendition of the iPhone will be amazing and cause a super cycle where earnings grow dramatically again.
Bear Case (Industry headwinds)
- Apple is selling at a p/e of over 14, thus at least we can say it is at least not incredibly undervalued. The main issue is that about 63% (*edit thank you /u/JustAsIgnorantAsYou it is not 90%) of their revenues come from the iPhone. Apple has seen smartphone sales drop year over year and it is not inconceivable for this to be a continuing trend. Apple’s phones are pricey and the cheaper competition’s phones are getting better (no matter how much I hate Android…). In my opinion (and I’m an iPhone user) the future will have even less people willing to pay a substantial premium for a higher quality smartphone, instead more people will just choose the cheapest price (they’ll all be comparable anyways).
Conclusion
Apple faces industry headwinds of margin deterioration. Apple bulls would argue either one of two things: the declining iPhone demand is over-exaggerated and that the bears are not pricing in anything else that’s in the pipeline. The bears argue that - no, it really is that bad. Whether or not one makes an investment in Apple would depend on their views on these issues, as well as trying to factor in the potential short term catalysts in repatriation of overseas cash as well as the iPhone 8.
As always, do your due diligence~
I am an investor too, so if you have anything to add to this please add it as a comment!
Submitted January 28, 2017 at 04:41PM by linlaoda http://ift.tt/2kyMsee