This blog has been bullish on AAPL’s stock since my first posting in December 2012. Those who have resonated with that perception (and invested) have fared well, with Apple’s stock up 80% since June 2013. But now that the stock is flirting with the all-time high reached in September 2012, it’s a good time to ask the question, “How much further can AAPL go?”
On a Price-Earnings Ratio basis, AAPL has been trending up since 2011, but so has the general market. AAPL’s current TTM PE is 16.0 versus the S&P 500’s 19.6. But more telling is the “Cash PE” which backs out Apple’s cash and marketable securities ($164.5 B) from the market cap and adds back long-term debt ($31.0 B). On that basis, Apple’s PE is only 12.4.
Having a lower PE than the market is logical if the company has lower growth prospects than the market. But what makes Apple still a bargain is that the consensus of analysts is for growth in EPS in the current fiscal year of a bit over 10%, which is only slightly below the 12.5% median earnings growth rate for the S&P 500. So the analysts are either wrong in their growth assessment, or wrong in their price targets. For more on this mismatch, see "Apple’s Cash P/E Ratio is a Bargain Given Analyst Growth Expectations."
Apple clearly is maturing as a company, and there is a limit to growth in the current business lines of iPhones, iPads and computers. But there are still some areas of high growth:
So while Apple’s surging stock price is breathtaking, there is still significant upside – if the markets stay focused on fundamentals and the unrivalled profit-and-cash-generating engine called Apple.
Note: All data were as of July 28, 2014, and based on information from Y-Charts and Yahoo Finance.
Disclosure: I've owned Apple shares since 1985
On a Price-Earnings Ratio basis, AAPL has been trending up since 2011, but so has the general market. AAPL’s current TTM PE is 16.0 versus the S&P 500’s 19.6. But more telling is the “Cash PE” which backs out Apple’s cash and marketable securities ($164.5 B) from the market cap and adds back long-term debt ($31.0 B). On that basis, Apple’s PE is only 12.4.
Having a lower PE than the market is logical if the company has lower growth prospects than the market. But what makes Apple still a bargain is that the consensus of analysts is for growth in EPS in the current fiscal year of a bit over 10%, which is only slightly below the 12.5% median earnings growth rate for the S&P 500. So the analysts are either wrong in their growth assessment, or wrong in their price targets. For more on this mismatch, see "Apple’s Cash P/E Ratio is a Bargain Given Analyst Growth Expectations."
Apple clearly is maturing as a company, and there is a limit to growth in the current business lines of iPhones, iPads and computers. But there are still some areas of high growth:
- Apple’s iTunes/Software/Services businesses grew 22% in 2013 and this segment has gross margins of 95% (on Apple’s 30% take of sales). If iTunes had been listed separately in the current Fortune 500, it would have come in at No. 218, ahead of Texas Instruments, Nordstrom and Marriott. Analysts expect 22% of profit to come from this segment in 2014, and one analyst expects it to grow to 36% by 2020.
- AppleCare is another 90-95% gross margin business that is experiencing 25% annual growth
- Payment processing could be a huge business for Apple -- potentially rivaling the iPhone business in scale of profits. See "The Next Big Thing for Apple Has Arrived – and Surprise -- It’s not a Gadget."
- Forays into wearables/fitness and TV are additional avenues for profitable growth
So while Apple’s surging stock price is breathtaking, there is still significant upside – if the markets stay focused on fundamentals and the unrivalled profit-and-cash-generating engine called Apple.
Note: All data were as of July 28, 2014, and based on information from Y-Charts and Yahoo Finance.
Disclosure: I've owned Apple shares since 1985
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