Editor’s Note |
It’s Friday. Time to give you a stock pick from our sister newsletter, The Spill, so you can think about it over the weekend and maybe make a move Monday morning. While The Juice helps you be better with money across the board, The Spill focuses on stocks financial pros are researching and judges how good of buys they are. If you’re already sold, you can sign up for The Spill – for free – here. |
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Proprietary Data Insights Financial Pros’ Top Tech Stock Searches in the Last Month
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Are Financial Pros Buying or Dumping Apple? |
It feels like the iPhone has been around forever. Yet, it’s just old enough to get its driver’s license. For over a decade, Apple (AAPL) has thrilled investors with breakneck growth…until now. Financial pros who searched out the stock spent a lot of time looking at the company’s revenue growth now and over the last decade. With supply chain snarls and slowing growth in China, Apple’s revenues fell by 2.4% for the trailing 12-month period. Although it’s still one of the most valuable companies in the world, many wonder if it’s hit a transition point from high-growth tech to something more akin to a consumer staple. Apple’s Business From iPhones to movies, Apple has created a unique ecosystem of products many people can’t live without. Even diehard ‘PC’ nerds probably own an iPhone. Apple’s been blessed with Steve Jobs and now Tim Cook at the helm, two of the greatest CEOs of all time. The company designs, manufactures, and sells personal electronics, including iPhones, Macs, iPads, wearable technology, and more. They also offer a suite of services from Apple TV to streaming music. The business can be broken down by geography, or by vertical as shown below:
The latest quarterly earnings report worried investors as sales dipped. The 5G upgrade cycle wasn’t enough to offset the sales declines in all regions. Even the iPhone 15 introduction didn’t garner the sales pop that usually follows a new model. Additionally, sales in China, its fastest growing market, continue to stagnate as the country’s economy struggles to gain footing and Huawei’s introduction of a phone that’s arguably superior to the iPhone. It doesn’t help that the Chinese government banned iPhones from their agencies citing security concerns. Financials
Source: Stock Analysis In the last decade, Apple’s only seen two periods of YoY revenue declines – 2019 at -2.0% and 2016 at -7.7%, both of which were followed by single digit and then double-digit revenue growth years. Gross margins improved lately as the profitable services segment grew at a faster pace than hardware. This also dropped down to better profit margins and free cash flow. We once noted that Apple had enough cash on hand (or equivalents) to buy Disney outright. That’s still the case with roughly $160 billion in cash and securities. Long-term debt sits at $95.2 billion, and Apple is paying a 3.95% interest. While not bad, there is probably some higher rate debt they could retire to get more bang for the buck Valuation
Source: Seeking Alpha Apple isn’t cheap at 27x-29x earnings nor at 24.5x cash. However, only Google (GOOGL) is cheaper on both, and Amazon (AMZN) on price-to-cash. Tesla (TSLA) and NVIDIA (NVDA) trade at extreme multiples, relatively speaking. But you see why in the next section. Growth
Source: Seeking Alpha Of the five companies, Apple’s YoY and forward revenue growth are the worst. While its free-cash-flow growth is great, NVDA and GOOGL did far better over the last few years. Simply put, Apple’s growth isn’t what it once used to be. Profitability
Source: Seeking Alpha Now, Apple is still an incredibly profitable company. And its returns on equity are unmatched. Yet, NVIDIA’s free cash margin is higher, while Google’s isn’t that far behind Apple’s. Our Opinion 6/10 It’s weird to go against the grain like this, but quite simply, we believe there are better investments than Apple right now. The company’s immensely profitable with tons of cash. Yet, we don’t see how they plan to transform that into growth over the next several years. Once that becomes clearer, we’d reevaluate our stance. |
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