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Although 25 times earnings is lower than the 40 times PE that Apple stock traded at in 2020, it’s still quite high and around 30% above the long term average.
Looking at the revenue mix, Apple now drives 80% of its revenue from products and 20% from services. But the iPhone is still the main driver, representing 50% of total revenue.
Naturally, Apple products have a lower gross margin than services. But Apple’s powerful brand means the company is able to charge higher prices for its products that its competitors. And Services brings a fast growing and high margin segment into the company’s revenue mix.
The last couple of years have been difficult for hardware companies and Apple has faced cost inflation and a number of significant supply chain issues. Trade tensions with China and COVID lockdowns have affected Apple’s production lines and caused the company to move some of its manufacturing to Vietnam with the help of Taiwanese supplier Foxconn.
Despite these headwinds, Apple’s production and revenue has been relatively stable with revenue falling only 2% last year and net income dropping only 5%. In fact, gross margins even increased from 38% in 2020 to 43% in 2022. This performance is testament to the strong management of the company and its powerful brand.
It’s this kind of solid performance that led to Warren Buffett’s Berkshire Hathaway accumulating almost 16 billion shares of the company.
The 2.4 trillion valuation of Apple stock is supported by healthy free cash flow, a dividend of 90 cents and significant share buybacks which inflate the earnings per share.
However, Apple’s size inevitably affects growth. 5 year revenue growth is now clocking 10% and net income clocking 13%. If you assume Apple can continue to grow earnings at 15% per year for the next 10 years and then trades at 20 times earnings that would put the company at a valuation of 7.7 trillion.
Although 25 times earnings is lower than the 40 times PE that Apple stock traded at in 2020, it’s still quite high and around 30% above the long term average.
Looking at the revenue mix, Apple now drives 80% of its revenue from products and 20% from services. But the iPhone is still the main driver, representing 50% of total revenue.
Naturally, Apple products have a lower gross margin than services. But Apple’s powerful brand means the company is able to charge higher prices for its products that its competitors. And Services brings a fast growing and high margin segment into the company’s revenue mix.
The last couple of years have been difficult for hardware companies and Apple has faced cost inflation and a number of significant supply chain issues. Trade tensions with China and COVID lockdowns have affected Apple’s production lines and caused the company to move some of its manufacturing to Vietnam with the help of Taiwanese supplier Foxconn.
Despite these headwinds, Apple’s production and revenue has been relatively stable with revenue falling only 2% last year and net income dropping only 5%. In fact, gross margins even increased from 38% in 2020 to 43% in 2022. This performance is testament to the strong management of the company and its powerful brand.
It’s this kind of solid performance that led to Warren Buffett’s Berkshire Hathaway accumulating almost 16 billion shares of the company.
The 2.4 trillion valuation of Apple stock is supported by healthy free cash flow, a dividend of 90 cents and significant share buybacks which inflate the earnings per share.
However, Apple’s size inevitably affects growth. 5 year revenue growth is now clocking 10% and net income clocking 13%. If you assume Apple can continue to grow earnings at 15% per year for the next 10 years and then trades at 20 times earnings that would put the company at a valuation of 7.7 trillion.
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NewsTranscript
00:00 Should you buy Apple stock? Apple has a market cap of $2.39 trillion. With $21 billion in
00:07 cash and $100 billion in debt, the company has an enterprise value of $2.47 trillion
00:13 and the company also has $31 billion in short term investments. Revenue over the last 12
00:19 months is $388 billion with $95 billion on net income and $98 billion of free cash flow.
00:27 That means the company is valued at 6 times revenue, 25 times earnings and 25 times free
00:33 cash flow. Although 25 times earnings is lower than the 40 times PE that Apple traded at
00:39 in 2020, it's still quite high and around 30% above the historical average. Looking
00:45 at the revenue mix, Apple now drives 80% of its revenue from products and 20% from services
00:51 but the iPhone is still the main driver, representing 50% of total revenue. Naturally Apple products
00:58 have a lower gross margin than services, but Apple's powerful brand means the company
01:02 is able to charge higher prices for its products than its competitors and services brings in
01:07 a fast growing and high margin segment into the company's revenue mix.
01:12 The last couple of years have been difficult for hardware companies and Apple has faced
01:16 high cost inflation and a number of significant supply chain issues. Trade tensions with China
01:22 and Covid lockdowns have affected Apple's production lines and caused the company to
01:26 move some of its manufacturing to Vietnam with the help of Taiwanese supplier Foxconn.
01:32 Despite these headwinds, Apple's production and revenue has been relatively stable, with
01:37 revenue falling only 2% last year and net income dropping only 5%. In fact gross margins
01:43 even increased from 38% in 2020 to 43% in 2022. This performance is testament to the
01:51 strong management team at Apple and its powerful brand.
01:54 The $2.4 trillion valuation of Apple's stock is supported by healthy free cash flow, a
02:00 dividend of 90 cents and significant share buybacks which inflate the earnings per share.
02:06 However Apple's size inevitably affects growth. 5 year revenue growth is now clocking
02:11 10% and net income clocking around 13% which is slightly lower than historical averages.
02:18 If you assume Apple can continue to grow earnings at 15% per year for the next 10 years and
02:24 then trade at 20 times earnings that would put the company at a valuation of $7.7 trillion
02:30 but the investment return on that would only be around 13% per annum.
02:34 Overall Apple looks pretty fairly valued here which is why I give the stock a neutral rating
02:39 but these are my personal opinions not financial advice and I do own some Apple shares. For
02:44 more detailed investing ideas make sure to visit our website ioverlookedalpha.com