After a Tidy Run, Apple Stock is Starting to Look Expensive
Apple, Inc. (NASDAQ:AAPL) is rallying this week, rebounding from its August fall and quickly closing up on its all-time highs. Unlike the majority of the S&P 500 companies, AAPL stock has had a great year, up over nine percent.
Keeping up with the tradition, Apple posted great results in the latest quarter and guided in-line for the next quarter, which AAPL stockholders are expecting, will follow with another beat. But apparently, Apple stockholders are showing more faith in the stock than its insiders.
Here’s Why Apple Stockholders Should Be Worried
Apple insiders hold approximately 0.03% of the outstanding AAPL stock, which turns out to be around 1.67 million stocks. In the last three months alone, however, the insiders have traded 1.42 million shares of AAPL stock. Of this, a humongous 1.15 million shares were sold; while only 0.27 million were bought by insiders. (Source: “AAPL Insider Activity,” NASDAQ.com, last accessed November 2, 2015.) During this period, the sales ranged between a low of $109.58 per share to as high as $116.28 a share. The average selling price for AAPL stock stood at $111.00. And interestingly, the most recent sales have been by none other than the company CFO; Luca Maestri, himself.
If we take the generally accepted stock investing rule of buying low and selling high, this raises concerns for prospective investors if the Apple stock is overvalued at the current trading price of a little over $120.00, when the insiders have been dumping the stock at an average price of $111.00. It also raises concerns in current AAPL stockholders’ minds as to whether the company will live up to its growth claims.
The company’s hefty cash pile lying idle in on-and offshore accounts has been another concern for Apple stockholders since the company is holding off from returning this money to investors. I’m not a huge fan of debt-financed stock buybacks. So were I an AAPL stockholder, I’d be rooting for dividends. However, with the company already paying a dividend, it would make more sense for Apple to utilize some cash to de-leverage itself.
Apple has a big portion of long-term debt lying on the current liabilities side of its balance sheet. Paying it down wouldn’t depress its current ratio and yet take down some of its debt burden.
I think Apple is a great company; in fact, the greatest company as of today. The biggest contributor to the S&P 500 earnings, Apple is here to stay for the long haul. However, AAPL stock is another story. The company may have shown great performance over the years, but the stock, not so much. When compared to unprofitable tech stocks like Amazon.com, Inc. (NASDAQ:AMZN) which is up over 102% year-to-date, AAPL stock’s performance has been meager.
The Bottom Line on AAPL Stock
The company management needs to prudently utilize its cash, instead of letting it lose its value while lying idle in bank vaults. Also, if the insiders continue to send bearish signals to the market, it would become exceedingly difficult for AAPL stock to fare well on the market.
Bottom line, AAPL stock is overvalued at this price.