I believe this company needs no introduction. True fans know about legendary Steve Jobs and how the brand evolved thanks to numerous movies and articles. So, let’s not dig too deep into the history but only briefly go through it, so that we don’t repeat what appears in search engines on mouse click.
The company was founded by Steve Jobs, Ronald Wayne, and Steve Wozniak in California in the 1970s. The role of Steve’s companions cannot be overestimated, but since Jobs was a media personality, he had to be the one who made the history of Apple. The first computer was released in 1976 (Apple 1).
The first mass-marketed personal computer — Apple 2 — was rolled out the next year. At that time, it was one of the most popular computers: worldwide sales amounted to 5 million pieces. What followed after were disastrous Apple 3, new 32-bit Macintosh powered by Motorola processors, National Technology medals for Jobs and Wozniak from Reagan, Jobs’ resignation in 1985 and his return in 1997. On top of that, the world witnessed the company skyrocket with the release of the iPod, iPad, and iPhone.
It goes without saying that Apple has not only fans but also harsh critics. Sometimes, social media is filled with heated debates. No one understates Apple's contribution to industry development, as well as Steve Jobs’ creativity and foresight. However, there is a flip side.
Microsoft Corp. or Alphabet have a higher market share as compared to Apple. It stands to reason that Apple cannot be compared with Tesla where the pastor guides his faithful flock, stating that this right here is a miracle technology, environment protector and a prestigious brand.
And yet TSLA is backed by doubtful patents, China assembly, batteries that are far from being environmentally friendly, and quality that is unlikely to be deemed luxurious. On top of that, they add a markup to a base price — you’d better choose an alternative from an impressively long list. Many quickly explored Tesla’s weak spots and hastened to open short positions that amounted to 27% (by contrast, the share of short positions doesn’t exceed 1% even for overbought Amazon.)
And then it started to look like the Enron story: capital goes where there is money. $20 billion loss is the bones of those who went short around 200 and another 18.43% of short positions. This is what the stock game can be like! Let’s see whether there will be a finale, like that of Enron, or Tesla can really strengthen its market position.
What both Apple and Tesla have in common is a fan club claiming that these are powerful brand names, although Samsung or Huawei don’t trail far behind and in many ways even surpass it.
The new model has taken the market’s fancy, sales are growing, and optimism is again fueling the stocks. Nevertheless, the growing popularity of Android, the closed system of Apple’s computers and smartphones (learn more in the article on MSFT), along with Apple’s inability to become a cut above the rest can gradually saw off admirers and market share piece by piece.
Perhaps, the company has some new cutting-edge technology up its sleeve that we are yet to hear about. It is worth recalling that Nokia seemed to be infallible (everyone used its products) and Vertu phones were a mark of successful businessmen. But something went wrong, as they missed the point somewhere and went down in the ocean of fierce competition.
By the way, newly-minted investors may think that investing means choosing a couple of high-profile companies. But it’s important to keep in mind that anything can happen to any company; no one can be on a roll in this world forever. It's no accident that popular index ETFs, bonds, gold, raw materials, etc. came into the market. Everything depends on risk treatment and capital diversification options.
As far as S&P 500 goes, Apple is among the leaders in terms of capitalization with a share of 4.33%. Of course, MSFT and AAPL don’t play such a major role as the euro in the dollar index or Sberbank in the RTS index. However, compared to other stocks, this share is solid, as it exceeds the share of the majority of stocks by 4–5 times.
From a fundamental standpoint, the company looks stable, with rapidly growing market expectations from the latest iPhone sales. Over the course of four years, revenue grew from $231 billion to $259 billion (by the end of 2019). Net income was stable, with an average of $55 billion. Earnings per share amounted to $11 per year, which makes P/E to be 28 at the current price of $318 with exaggerated expectations. In other words, the company should generate at least $20 per year or $5 per quarter at the current price.
Let’s take a closer look at the current quarterly reports and check whether the expectations are true.
We can see that $3 is a typical figure for quarterly reports, $4.18 was recorded in the report dated January 29, 2019, and $4.53 is expected on January 29, 2020. Consequently, some reports drive optimism but clearly lack stability. I think that the company will soon return to $3 per quarter, which will result in $12 EPS per year. A few similar 3-dollar reports can make the market adjust its expectations on the chart again.
Apple pays relatively modest dividends of 0.97% (compared to 1.74% in the market according to SPY). But it’s better than zero like in the case of GOOG or AMZN. It operates with solid profitability: 16.10% ROA, 53.80% ROE, 26.90% ROI (by contrast, MSFT has 15.10% ROA, 41.60% ROE, 19.90% ROI with a dividend of 1.22%). The number of short positions, unlike TSLA, is only 1.05%.
From a technical standpoint, the instrument rapidly lost traction not so long ago in 2019, returning to the fair price when the price around 170 justified the current $3. Technically, correction stopped at 150 following a false breakout, from where a new trend continued with renewed vigor.
Author: Victor Makeev