10 Reasons To Stay Bullish On Apple
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Now that Apple (NASDAQ: AAPL) is up 365% over the past five years, it's easy to think that the company's realized all of its upside. But consider this: Its previous surge in stock price was based on fundamental growth -- not investor exuberance. To illustrate, check out the chart below. Apple's stock price, book value per share, and earnings have all increased at relatively the same rate over the past five years.
Today, Apple trades around $675 a share, having made investors plenty of money over the past five years. Its P/E sits at about 15.8. This implies that the market expects a growth rate of 23.29%.
How realistic is this expectation? Can Apple shares appreciate even more? Absolutely. In fact, I have 10 reasons why I suspect this stock still has plenty of upside.
10 reasons to stay bullish on Apple:
1. Asia-Pacific sales are exploding.
2. Apple competitors continue to struggle. While the fact that Samsung periodically outsells Apple makes good headlines, according to a recent MacRumors report, 73% of the top 8 mobile phone vendor profits go to Apple. Competition looks even worse when you examine tablet sales. As cited by Business Insider, the iPad is 3 years old and Apple's tablets still hold 69% of the tablet market. Or consider this factoid from ComputerWorld: "Apple sold more iPads in any single three-month period than the Galaxy Tab sold over its lifetime."
3. Apple is rumored to launch an iPad Mini in October. Many studies like this one claim that interest for Amazon's (NASDAQ: AMZN) new Kindle Fire pales in comparison to the interest in Apple's potential iPad Mini. Unfortunately, Amazon's lack of transparency means that kindle fire sales are kept secret. All we know is that it is Amazon's best selling product. Research firm, Forrestor, estimates that Amazon sold about $5 million of its $199 Kindle Fire during the holiday season and only about only 2 million since then. These numbers pale in comparison to Apple's 39 million tablets sold.
4. Apple's gross profit margins are at an all time high (44%), and analysts see no sign of significant erosion to margins in the near future. Apple's gross margins are the envy of the industry. Consumers are simply willing to pay more for Apple products.
5. Apple pays out a dividend yield of 1.57%, which it could easily increase at any moment and still meet all of its financial obligations and continue to invest in growth.
6. Apple's strong financial position, excellent operational performance, and high-volume sales give the company overlooked economies of scale. A look at some items from the financial statements and some key ratios of Apple and competitors reveals an obvious durable competitive advantage.
|Company||TTM ROE||TTM Sales||TTM Net Margin||TTM Gross Profit Margin||TTM ROA|
|Google (NASDAQ: GOOG)||19.03%||$43 billion||25.74%||63.2%||14.72%|
|Microsoft (NASDAQ: MSFT)||27.51%||$73 billion||23.03%||76.2%||
The fact that Apple, a consumer electronics company, has higher ROE, ROA, and net margins than industry leaders in profitable industries like search (Google) and software (Microsoft) is a key indicator of just how operationally efficient Apple is for shareholders.
7. The iPhone is still not yet offered to customers by the largest carrier in the world: China Mobile (NYSE: CHL). China Mobile has 645 million customers--that's twice the population of the United States. If Apple arranges a launch with China Mobile, this will have an enormous impact in iPhone 5 sales.
8. Apple trades at just 15.8 times earnings. If share prices don't appreciate from today's levels, imagine how low the P/E will be after iPhone 5 sales and the holiday season are factored into the earnings.
9. Apple possesses a wide economic moat, evidenced by Apple's ability to maintain strong market share. In the last 12 months, Apple has lost a little market share in smartphones (which it will likely gain back during the holiday season with the launch of the iPhone 5); and gained market share in both the PC market and tablet markets.
10. I can't find any other company on the stock market with such an unbelievable track record of growth, incredible profitability ratios relative to competitors, and strong future growth catalysts, that trades at such a conservative valuation.
The bottom line
Think twice before you short Apple. The company still has plenty of growth to realize.
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DanielSparks owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.