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Apple Stock Analysis



Company: Apple Inc.

Ticker: AAPL Previous Close: $134.60 (2/2) Industry: Technology & Consumer Electronics


Short-term: Buy

Middle-term: Buy

Long-term: Buy



ANALYSIS:


Economic Moat


Free Cashflow: The free cashflow and net income figures analyzed in the below portion of the analysis will be quarterly in nature. This was done to bring focus to the recently published quarterly results and performance.


Apple (AAPL):


Free Cashflow: $35,263,000,000

Revenue ( = Sales): $111,439,000,000

Free Cashflow / Revenue (>5%) = 31.64%➤ This percentage is exceptionally strong. It does seem that the firm has done far better in this most recent quarter than in the past; however, when further reflecting on this number and looking into past performance, this ratio was certainly good enough as well.


Net Margins (> 15%)

Apple (AAPL):


Net Income (Consolidated) : $28,755,000,000

Revenue : $111,439,000,000

Net Margin = Net Income / Revenue = 25.80% ➤ This percentage is great, similar to the percentage for Apple's cashflows. Again, in past quarters and years this ratio was strong as well but it has increased and gotten even better over the past quarter.


ROE (> 15%)

Apple (AAPL):


Return on Equity (ROE)= Net Income/Shareholder's Equity

ROE = 87.87% ➤ At first glance this seems to be a very high percentage which can be a great factor in considering the long-term value of a company, but oftentimes such a high percentage is paired with high debt. To that end, these two factors have been further analyzed in the latter part of the analysis.


ROA (> 6%)

Apple (AAPL):


Return on Assets (ROA) = Net Income / Assets


ROA = 17.73% ➤ Considering the entirety of Apple's operations this is a very good percentage.


Economic Moat Conclusion


Apple (AAPL): Altogether, Apple has very good free cashflows in which the company was shown to have both increased and gotten even stronger during the past quarter according to this metric. Their net income is also very strong which resulted in their good net margins, return on equity, and return on assets. From this, it can be concluded that Apple does have an economic moat and actually a fairly strong one at that. As will be discussed later in the analysis, their economic moat is further strengthened by their cult like following.


Valuation

Apple:


To calculate this metric the 2020 free cashflows of $73,365,000,000 were used. In general, their free cashflows have grown steadily over the past years. Also, based on the figures from the most recent years we can assume a yearly growth rate of 13% in the first five years and 7% in the years following. Taking into consideration their very wide economic moat and strong position within the market, it can also be assumed that Apple has a discount rate of 7%. Combining each of these variables together and in conducting further analysis, we get an estimated value of $169.20


Current Price: $134.60

Estimated Fair Value Price: $169.20

➤ 22.01% Margin of Safety. As this percentage relates to the margin of safety, it reveals that with a company such as Apple that they have a good margin of safety. Taking into account their financials and valuation metrics, it could be said that the firm is currently well-valued.


20 Point Analysis


1. CEO

Apple: Tim Cook is the current CEO and has been working in that capacity since 2011 and before then, he was the COO at Apple. Going into his history a bit, Cook joined Apple in 1998 which has afforded him plenty of experience and familiarity with the company. Since his assignment as CEO, he has had a tremendously strong and positive influence on the financials and stock value over these past years. It should also be noted that before Cook's joining of Apple he gained 12 years of experience working at IBM as the Director of North American fulfillment and COO. Each of these aspects considered, Cook's professional history and successes are indicative of him possessing the capability to continue making the best decisions for Apple well into the future.


2. Is the company innovative?

Apple: They are not as disruptively innovating as they were in the the past with Steve Jobs at the helm, but they still bring new and improved products to the market. This consistency and decent innovation is of course reflected in their financials and overall growth. Apple's current innovation can be seen as positioned between incremental and disruptive. The main strength in their products in this current era is quality, which, in their case, refers to products and services that are both high-performance design and consistently rendered into the markets.


3. Can the company grow?