What’s your thoughts on Apple Stock?

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Warren Buffet has been recently been buying Apple shares heavily and said that if the stock kept going down, who knows how much he would have bought! Let’s dive in and see what my analysis and valuation have to say about the stock price.

𝗧𝗵𝗲 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀;

The company designs manufactures and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services. It also provides AppleCare support and cloud services- and operates various platforms, including the App Store. Additionally, the company offers various services such as Apple Arcade, Apple Music, Apple News+, Apple TV+, and Apple Card.

Apple sells its products through its retail and online stores, direct sales force; and third-party cellular network carriers, wholesalers, retailers, and resellers. Apple Inc. was incorporated in 1977 and is headquartered in Cupertino, California.

𝗔𝗽𝗽𝗹𝗲’𝘀 𝗸𝗲𝘆 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝘀;

  • Apple’s top line has grown from $229 billion in 2017 to $366 billion in 2021, — an incredible ~60% increase in the last five years, for such a large corporation. This gives the company an average 12.5% increase per annum in the last decade. The question is; can it keep growing high single digits, and for how long?
  • Apple’s operating profit, (𝘪𝘴 𝘵𝘩𝘦 𝘢𝘤𝘵𝘶𝘢𝘭 𝘱𝘳𝘰𝘧𝘪𝘵 𝘰𝘧 𝘵𝘩𝘦 𝘤𝘰𝘮𝘱𝘢𝘯𝘺 𝘢𝘧𝘵𝘦𝘳 𝘱𝘢𝘺𝘪𝘯𝘨 𝘪𝘵𝘴 𝘤𝘰𝘴𝘵𝘴 𝘰𝘧 𝘱𝘳𝘰𝘥𝘶𝘤𝘪𝘯𝘨 𝘱𝘳𝘰𝘥𝘶𝘤𝘵𝘴 𝘢𝘯𝘥 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴, 𝘴𝘢𝘭𝘢𝘳𝘪𝘦𝘴, 𝘮𝘢𝘳𝘬𝘦𝘵𝘪𝘯𝘨 𝘢𝘯𝘥 𝘢𝘯𝘺𝘵𝘩𝘪𝘯𝘨 𝘳𝘦𝘭𝘢𝘵𝘦𝘥 𝘸𝘪𝘵𝘩 𝘵𝘩𝘦 𝘰𝘱𝘦𝘳𝘢𝘵𝘪𝘰𝘯𝘴 𝘰𝘧 𝘵𝘩𝘦 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘣𝘶𝘵 𝘣𝘦𝘧𝘰𝘳𝘦 𝘢𝘯𝘺 𝘪𝘯𝘵𝘦𝘳𝘦𝘴𝘵𝘴 𝘢𝘯𝘥 𝘵𝘢𝘹𝘦𝘴), was $61 billion in 2017 and grew to over $100 billion in 2021, with an average operating margin of 26.4%.
  • Apple’s liquidity position; — the company’s debt to equity ratio is 4, meaning the company has $4 of debt for every $1 of equity, and above 2 which is where I prefer to see this number. However, the company has a very strong cash flow that can take care of its liabilities and $35 billion in the bank.
  • Apple is a very large and mature company and it will deliver mid-single digits on its top line for the foreseeable future, — as a result, to reward its investors, it provides dividends with a “cute” 0.54% dividend and the most tax-effective reward of shares buybacks. The company is aggressively buying back its shares meaning is giving its investors a bigger piece of the pie.
  • Apple has a very strong free cash flow that keeps growing, from $52 billion in 2017 to $93 billion in 2021. With its Free Cash Flow, the company can pay its debt within less than 5 years.

𝘾𝙤𝙣𝙘𝙡𝙪𝙨𝙞𝙤𝙣;

Apple is one of the most valuable companies in the world, and no doubt one of the best companies to invest your money in. However, the question still remains, how much it can still keep growing as it gets larger and larger. My assumption is that the company can still grow at around 7% per-annum in the next decade as its services are in the beginning stage. Most people who use Apple’s Music, TV, etc, are getting it for free when they buy a new iPhone, as time goes by and Apple starts charging for these services I believe we will see better margins and bigger Cash Flow from the company.

At this price, though is not a buy for me, however.

𝗪𝗵𝗮𝘁’𝘀 𝘆𝗼𝘂𝗿 𝘁𝗵𝗼𝘂𝗴𝗵𝘁𝘀 𝗼𝗻 𝗔𝗽𝗽𝗹𝗲, 𝘄𝗼𝘂𝗹𝗱 𝘆𝗼𝘂 𝗯𝘂𝘆 𝗶𝘁, 𝘀𝗲𝗹𝗹 𝗶𝘁 𝗼𝗿 𝗵𝗼𝗹𝗱 𝗶𝘁?