Is The $2 Trillion Apple A Buy After The New iPhone Release?
Back in July I answered the question – Should You Buy Apple?
Today, I answer the question – Is The $2 Trillion Apple A Buy After The New iPhone Release?
You can read the original article in full at the link above.
But if you don’t want to; here’s a quick recap of the last Apple article…
Apple is rumored to release its first 5G enabled phone later this year sometime between September and November.
But, should you buy its stock before that happens?
Its worked to create movements with these products.
In short, Apple’s helped transform the entire world into what it is today where you have more technology in your pocket than what took man to the moon in the 1960’s.
This transformation from selling products to selling movements not only paid off with the world we now live in today… But also, in terms of the company’s value as well.
Back on August 2nd, 2020, Apple became the first company ever to surpass $1 trillion in market cap.
And as of this writing on July 23rd, 2020 it’s the largest company in the world based on market cap at $1.62 trillion.
The original iPod launched in 2001.
16 years after the company fired one of its original founders.
Since its original problems, Apple shares have been on a journey into the stratosphere.
If you bought $10,000 worth of Apple shares at its low point of $0.23 in 1982 that investment would now be worth $16,110,000 with Apple stock selling at $370.93 per share as of this writing… Not including dividends.
This is a return of 1,611X or 161,100% over 38 years.
How Profitable is Apple?
On an operating profit basis Apple’s produced an average operating profit margin of 28.9% per year every year over the last 10 years.
I look for any company to produce above 10% margins on a consistent basis to consider as an investment.
Its margin is 2.89X this minimum threshold.
What about its FCF/Sales?
Over the last 10 years Oracle’s FCF/Sales is 25.6% on average every year.
This is fantastic.
I look for companies to produce FCF/Sales at higher than 5% on a consistent basis. Apple also crushes this number too.
Both operating profit and free cash flow are important because they help show you the true profitability of the company.
The more profitable a company is the higher its value goes over time. And the more money it can spend on innovations and serving customers.
I estimate that far fewer than 5% of all public companies on Earth surpass my minimum thresholds for the 2 metrics above on a consistent basis… And Apple crushes them.
It well surpasses what I look for on a minimum profitability basis… But what about its valuation?
Apple Is Overvalued
Its current P/E is 30.4.
Its current P/CF is 23.2.
And its forward P/E is 25.7.
I look for companies to sell at ratios below 20 on these metrics to consider the investment undervalued.
These show that Apple is overvalued today by a large margin. And because of this I don’t recommend buying its stock today.
Does, this mean you should sell of its stock today if you own some?
Does this mean its stock is going to crash badly?
Neither are true in Apple’s case.
I expect it to continue performing well in the years to come.
I expect the launch of its new 5G phone to further increase its already spectacular revenues, profits, and cash flows.
And I expect Apple to remain one of the best run companies in the world.
But as of right now I don’t recommend buying it because its overvalued based on its current numbers and metrics.
If you’re looking for a great potential stock investment look at Apple – BUT only when its valuation falls.
This thesis to buy Apple when its cheaper continued to play out since July.
Apple launched the iPhone 12 on October 23rd. And according to analyst reports as of October 19th, its already sold “up to 2 million iPhone 12 models in the first 24 hours of preorders” becoming available.
And it expects to sell up to 80 million of them by the end of the year.
We won’t know how many it sold until at least the end of the year… But we can still evaluate whether it’s a buy or not based on its valuation.
And unfortunately, it’s still not cheap enough to buy…
Its P/E is now 35.1.
Its P/CF is 25.
Its forward P/E is 29.
And its enterprise value to operating income – EV/EBIT is 28.2.
On all three metrics at the top I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These show that Apple is even more overvalued now than it was back in July.
And this means buying its stock does not give you a margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning it going forward.
With Apple being overvalued it makes the investment riskier.
I’ll keep you updated on Apple in the coming months… But for now, continue being patient and wait to buy its stock until it’s cheaper.
Plus, I’ve already found better potential investments for you…
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.