Apple: Tons Of Room For Growth, But Don't Wait To Buy
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With little question, the leader among high cap stocks the past four years has been Apple (NASDAQ: AAPL). After bottoming at about $97 per share in late September, 2008, it has been trading close to $700 recently, for an average annual increase in share price value of about 65%. Over the last five years, earnings have grown at a 73% compounded clip.
The company hasn't achieved this astonishing growth by being the perfect company—in fact, there are websites devoted to mistakes the company has made in its product. But it is simple to discover Apple's success beyond the dollar signs.
Twenty years ago, Apple was a computer company, and nobody would have thought it would come to dominate digital music, tablets, and smart phones as it has. In fact, Apple fundamentally created these markets. That being said, I do not know what Apple will be selling twenty years from now. Televisions? Smart cars? Womens' dresses (microchips included)? What I do know is that in 2030, Apple will be selling, in large volume, something you and I can scarcely conceive of today.
With much fanfare, Apple recently released its iPhone version 5. Sales of the phone in this country are limited only by Apple's supplies. Through its first weekend on sale, Apple sold over 5 million units of the new phone, with millions more being sold overseas.
Perhaps most interesting, the phone includes a Qualcomm modem chipset compatible with China Mobile (NYSE: CHL) and its 688 million subscribers. Apple had already been selling product through China's second and third largest carriers, China Unicom and China Telecom. But China Mobile in particular is an interesting proposition.
Its scope, in case you were not paying attention, gives it a subscriber base well over twice the number of men, women and children in the U.S., and it has room to grow. In the first half of 2012, China Mobile grew its subscriber base by 5%, increased the number of minutes used by its customers to 9%, and increased data usage, which became 11% of overall revenue in the first half of 2012. Only about 10% of its subscribers use 3G service, so China Mobile has plenty more room to grow its data based services.
The stock has struggled some as China's growth rate has ebbed, but over the long run, steady revenue and profit growth are likely from this behemoth. Couple that with a dividend yield of 3.4% and a beta score of just 0.14 and China Mobile is a fine choice for conservative investors seeking Asian exposure.
Despite recent success, all is not quite perfect for Apple. Its massive, 80,000-employee factory in northern China has been the location of worker unrest and riots. The new iPhone has also taken heavy criticism, as Apple rejected using Google's (NASDAQ: GOOG) ubiquitous mapping app in favor of Apple's new, proprietary application. Apple's map hasn't been received very well, and needless to say many users are still finding themselves relying on Google Maps instead.
On the earnings side, the deluge of these high margin phones and tablets will likely give Apple sterling earnings for the first quarter of fiscal 2013. In its third quarter of 2012, Apple posted earnings of $9.32 per share on revenue of $35 billion, up 19.6% and 22.4% respectively. While those are hardly embarrassing numbers, they were disappointing by Apple standards. This lackluster performance was largely due to many Apple devotees waiting on new versions of Apple's iPhone and iPad before making purchases. And unfortunately, fiscal fourth quarter will benefit from one week only of iPhone 5 sales, which may translate to another earnings disappointment.
Apple is the most richly capitalized stock in this country, with a market value of nearly $650 billion. There is much chatter of Apple perhaps becoming the first U.S. based company to reach a capitalization of $1 trillion. I don't see why Apple would not reach that number, and with a PEG of 0.69, it even appears that Apple may be undervalued by traditional measures. Value issues aside, this is the growth company of our era, and I do not believe the ride is over yet. At a 20% annual growth rate, that trillion dollar barrier will be breached by mid-2015. I bet Apple gets there.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, China Mobile, and Google. Motley Fool newsletter services recommend Apple and Google. 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.