Huge Gains Ahead for Apple Stock Investors?
Everyone loves to hate Apple Inc. (NASDAQ:AAPL) stock these days. It has all the necessary ingredients to be a short seller’s favorite in today’s market condition. But if you decide to become an Apple stock bear just because of what other people are saying, well, you’d be missing out on a huge opportunity.
I’m no Apple fan boy. Among my smartphone, tablet, and laptop, only one of them is made by Apple. What I like more is Apple stock. At today’s price, its value is just too hard to ignore.
Shares of the Cupertino, California-based company were already in the doldrums. Since falling from more than $132.00 apiece last July, AAPL stock shares were traveling on a path filled with lower highs and lower lows. That’s not a good sign from a technical point of view.
After a disappointing earnings report, all hell broke loose. Since Apple reported on April 26, its share price has plunged another 13.2%. That’s more than $70.0 billion in market cap evaporating in less than three weeks!
Now, it’s time to remind ourselves what billionaire investor Warren Buffett said: “Be fearful when others are greedy and greedy when others are fearful.” Also note that Warren Buffett is a value investor and for many of his successful picks, he bought them when they were trading at less than 10X their earnings.
What is Apple’s price-to-earnings multiple right now? It’s 9.63X.
Of course, this coincidence of numbers and sentiment does not translate to Warren Buffett endorsing Apple stock.
But there’s more… $32.9 billion more.
To many tech companies, it would be great if they could earn that amount in revenue in an entire year.
For Apple, it only took a quarter.
And it’s not even Apple’s entire quarterly revenue.
That $32.9 billion is just the net sales of one product—the “iPhone.”
What’s more impressive is that this was not a quarter with a major update. Apple is expected to launch its flagship “iPhone 7” this September. Many of those who want to update their phones will probably wait until the iPhone 7 is launched.
Still, somehow, the company sold 51.2 million units of the device during the quarter.
Here’s another number: one billion.
That’s the number of active devices in Apple’s ecosystem. The company uses its own operating systems on all its products—including the iPhone, “iPad,” “iMac,” “MacBook,” “iPod,” “Apple TV,” and “Apple Watch.”
What this means is huge monetization opportunities for the company. With such a giant userbase, Apple could launch a service and instantly turn it into a big hit.
In fact, it just did that. Remember when the company launched “Apple Music” last year? A lot of people doubted it because the industry was already dominated by the incumbent, Spotify. Yet in less than a year since its launch, Apple Music has amassed more than 13 million paying subscribers. (Source: “Apple Timothy Donald Cook on Q2 2016 Results-Earnings Call Transcript,” Seeking Alpha, April 26, 2016.)
Building a services empire on top of its hardware device business is a great strategy for Apple. In its most recent fiscal quarter, the company generated $6.0 billion in services revenue, representing 20% growth year-over-year. (Source: “Q1 2016 Unaudited Summary Data,” Apple Inc., January 26, 2016.)
One more thing: Apple has more than $200 billion in cash on hand. I’ll skip what this means for dividends and buybacks because every analyst has already talked about that.
Instead, I see it like this: if someone in this world is working on the next big thing, having a pocket full of cash would give you a chance to buy it or develop your own version.
The Bottom Line on AAPL Stock
And I haven’t even mentioned driverless cars. That project is still in the works and has the potential to make huge amounts of money for the company. But even without it, Apple stock still has plenty of go left.
If you’re betting against AAPL stock now, be warned; you’ll be kicking yourself later.