Apple Stock Analysis | Biggest Company in the World

4 min read
APPLE Inc recently crossed $2 Trillion market capitalization. How are its financials, are the valuations justified?

Foreign Stock Analysis – APPLE

Introduction

Everyone is aware of the company (APPLE Inc) that was started in a garage in 1980s and recently crossed $2 trillion benchmark to become the biggest company in the world. Its valuation has doubled in last 2 years. In this blog, we will discuss the product mix and financials of the company and see if such high valuations are justified.

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APPLE Stock Analysis

APPLE in last 20 years

APPLE Stock Analysis
Apple’s stock price movement in last 20 years
  • As seen, the stock price hovered between $1-$4 between years 2000-2004, post that the stock price kept trending upwards.
  • However, it also had aggravated falls in 2019-2020, 2018-19, 2015-16 and 2012-13.
  • Currently the stock is trading on euphoric valuations mainly because it is a part of two main US indices : NASDAQ– 12.08% and S&P – 5.80%.
  • Another reason for this rally can be the tremendous passive investment flows in the index due to index investing. This trend is gaining popularity all over the world as well recently.
APPLE’s journey from $1 trillion to$2 trillion
APPLE Stock Analysis
Source – Times of India
  • 2 years ago, APPLE touched $1 trillion market capitalization along with companies like Amazon, Google, Facebook.
  • Now it has crossed $2 trillion market cap and become the biggest company that also during lock-down which is commendable.
  • APPLE’s 2 Year CAGR is ~36%. This rally is not because of any specific products launched.
APPLE Vs Indian companies
APPLE Stock Analysis
– Times of India (ToI)
  • APPLE has reached $2 trillion market capitalization , whereas top Indian companies like Reliance Industries, TCS, Infosys, HUL, HDFC Bank together have $495.28 billion market capitalization.
  • This shows that there is lot of value that can be unlocked in India mainly due to the rising demographic dividend on the back of higher proportion of young population. This will lead to increasing disposable incomes,thus leading to glorious futures for Indian companies.
APPLE’s Sales
APPLE Stock Analysis
Apple’s sales in one year
  • As seen from APPLE’s product mix, I-Phone contributes maximum (~50%) to the overall revenue, followed by Mac (20%), iPad, accessories and services.
  • I-Phone and Mac are losing its sheen in the current years mainly due to the lack of innovation in the upcoming products.
  • In the last one year, APPLE’s accessories like Pencil, Air pods, etc have shown a robust growth of 32%.
  • Currently, services segment looks lucrative and will result into value unlocking in the upcoming years.
Apple’s Services
APPLE Stock Analysis
Apple services

Top 4 services of apple started recently in last 6 months.

  • Apple arcade – more than 100+ games. This gives competition to Nintendo, Microsoft and Sony.
  • Apple TV plus – streaming services which gives competition to Netflix. It was just set up box but now they increased its level and content is expected to be good as Apple is trusted by people.
  • Apple card – Apple respects privacy of data as endorsed by their tagline “Your phone knows a lot about you but we don’t know anything about you”. This service provides credit card in phone itself. It has been launched in US with Goldman Sachs as their banker and has already received 4 million subscribers which is quite incredible.
  • Apple pay – It is like google pay and this service complements Apple card.
  • Apple is producing strong products and creating services around them which is being beneficial for them.
  • As seen the focus is mainly on maintaining quality even if innovation is not present in latest products.
  • Services revenue has doubled from last 5 years with almost 14% CAGR.
APPLE’s Financials
APPLE Stock Analysis
APPLE’s R&D expense as a % of sales – last 10 years
  • 2020 expected – $18 billion and it will be increasing, 7% of sales is spent on R&D.
  • Such large expenditure on R&D is the reason behind APPLE’s good quality products ,also which differentiates it from the other companies.
APPLE Stock Analysis
APPLE’s Financials
  • Profitability ratios : If we compare company’s latest financials like operating margin, net margin, etc with the median financials over 10 years, they have not changed much.
  • Leverage ratios: APPLE has taken significant debt in the recent years but also has healthy interest coverage ratio of 22 x.
  • Valuation ratios : Re rating is mainly because of the huge potential of services industry and recent infusion of liquidity by central bank.
  • Company’s earning yield is 2.7% which is quite attractive as compared to bond yield of 0%. This provides people an incentive to invest in the company, thus raising the valuation of company.
  • However, current valuations do not seem sustainable once bond yield starts picking up. Hence, it is recommended to invest in staggered manner instead of lump sum and stick to a proper asset allocation plan.

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