Posted on 10/27/2015 2:25:10 PM PDT by Swordmaker
Apple makes, for the most part, phones.
Phones that are increasingly becoming a commodity.
Their day in the sun as a true growth stock are long behind them. That doesn’t mean they won’t come out with something that *New*, but the revenue growth from the new thing will be diluted by the massive revenue and decelerating growth of the old things.
If you want a growth stock you need to look at sequential revenue numbers and not profits. You don’t buy growth stocks for their dividends, you buy them for price appreciation. Apple is predictably transitioning from a pure growth company (reinvesting all its profits and more into R&D) to one that is passing those profits back to shareholders as dividends.
The more money Apple makes on the commodity side of their business, which is virtually everything, the more difficult it becomes for anything *new* they develop to have a meaning full impact on their top line rate of revenue growth.
As for P/E, or Price divided by Earnings Ratio. I would suggest you instead call it a “Price Expectation” ratio.
A low P/E = low expectations.
A high P/E = high expectations.
It’s very very rare that you can find a real growth stock with a low P/E. And when you think you have found one? You need to ask yourself “How is it possible that I am the only one that sees this?” It’s highly unlikely, therefore, what you think you know is already reflected in the current price.
They have been claiming this canard for the last five years. Let me say this so you can understand it. Apple does not compete with COMMODITY PHONES. Nor does APPLE SELL COMMODITY PHONES.
Nor does Apple sell COMMODITY COMPUTERS. Nor does APPLE SELL COMMODITY COMPUTERS.
You are again, one of those who does not seem to understand what Apple sells.
Apple takes home 93% of all cellular phone profits in the world. . . by NOT competing with the bottom of the barrel COMMODITY PHONES. They ignore them.
Apple takes home approximately 45% of all Personal Computer profits by NOT competing with the bottom of the barrel COMMODITY PERSONAL COMPUTERS. They ignore them.
You make the erroneous conclusion that Apple has no room to grow. . . but 30% of the purchasers of all iPhones in the last quarter were previous Android users. 30%. . . and the fastest growing market for iPhones right now is South Korea, Samsung and LG's home market. The second fastest is China where 50% of the buyers were brand new iPhone buyers. . . and the other 50% handed their old iPhones down to other users.
Apple is predictably transitioning from a pure growth company (reinvesting all its profits and more into R&D) to one that is passing those profits back to shareholders as dividends.
That is patently untrue. . . If you think it is, you are not following the news. Apple has certainly paid out dividends and is also buying back stock as a means of returning profits to investors. but Apple also increased their R&D budget by over 50% this year, have brought out multiple new products this year, and are heavily invested in technology outside of their general field of expertise. Apple has NEVER been afraid of Cannibalizing older products in favor of newer ones.
You are trying to tell an Economist and a person with a minor in Finance how to suck eggs, Zeneta. . . and you are using the WRONG company to do it, because you've demonstrated to me you do not understand Apple and its products at all with all of your talk of commodity products.
Expectations. That is the traders talking about when they keep being surprised with Apple's results year after year after year. I totally understand high P/E being about wishful thinking too. . . but there HAS to be an end game. . . and with these high P/E companies such as Amazon, I simply do not see one that does not involve sudden increases in prices after they have bankrupted all of their competition. Google? They have never shown a successful product to sell other than the information about the people who use their services. They've never successfully monetized Android. . . and there's a push-back on advertising that is going to curtail a lot of that income.
Both ALPHABET and Apple are working on future automobiles. . . and the Apple "expectation" is to disrupt that industries. Yet you say they are not putting anything into R&D. Apple gets more bang for the buck than any other company for my money.
It was just reported that 14% of every household in the United States is now signed up with Apple Pay.
All of the rest of those who think like you are making the same mistakes. They think that phones, computers, etc., are commodities. . . failing to recognize that Apple products simply do not compete against those commodity products and are NOT comparable. They just don't get why Apple doesn't cut it's prices and why Apple doesn't try to go for "market share," which for them seems to be the be-all-and-end-all of market-statistics.
Do you not realize that Apple got to be the most valuable and most profitable company in the world during these EXACT SAME CLAIMS by these EXACT SAME ANAL-cysts, screaming Apple is only selling COMMODITIES COMMODITIES COMMODITIES. . . run away, run away, run away!
Price is ‘too low’ given cash flowAn analyst at BTIG highlights the fact that Apple is a cash-generating machine.
“Apple is converting 30% of its revenue into free cash flow, generating $70 billion of free cash flow annually,” said Walter Piecyk in a note late Tuesday. “This implies an 11% FCF yield relative to its $650 billion market cap. That is simply too high of a yield given its market position, expectation of growth and high margins, regardless of the much lower level of revenue growth and EPS expectations for 2016 detailed above.”
Piecyk has a buy rating on the stock and a 12-month price target of $160.
“Even with no growth in EPS, we believe Apple’s valuation is too low based on cash generation,” he said.
Sorry for my delay in responding.
I’ve been deeply involved in analyzing stocks and markets for over 25 years and have learned a few things along the way.
There is no doubt that Apple is an extraordinary company and their stock price appreciation since 2007 certainly reflects this. Along the way they have had their skeptics and advocates and Apple has delivered for both. Substantial price moves for the advocates AND maintaining valuation measures for the skeptics. There is no reason to believe that this won’t change.
I’m neither an advocate nor a skeptic.
I believe that AAPL is and as been fairly valued for a number of years. The increasing “free cash flow” is not a positive for those that think AAPL should be trading a 20 plus P/E or a PEG ratio of 1.5 or more. As you quoted, “This implies an 11% FCF yield relative to its $650 billion market cap. That is simply too high of a yield given its market position, expectation of growth and high margins.... Therefore, the stock price is too low, according to this BTIG analyst.
And the market price for AAPL is still is what it is and continues to reflect ALL the knowledge of thousands of very smart people with billions of dollars analyzing the most widely held stock ever, distilled into the finest representation of risk/reward, hope/fear and human nature that is presented in real time as it’s current price.
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