Is AAPL Stock Still Worth It?
For more than a decade, Apple Inc. (NASDAQ:AAPL) was the gold standard of investing. AAPL stock outperformed the market by several orders of magnitude in that time, delivering capital gains in excess of 919%.
It was a spectacular run, driven by the growth in the smartphone market. Few people would have guessed that Apple would become the biggest company in the world, but those who did made a ridiculous amount of money. For a while, AAPL stock growth came like clockwork; it seemed as predictable as the sunrise.
But something changed last year…
Demand for consumer electronics slowed, particularly for smartphones and personal computers. Greater China was supposed to be the engine of growth for Apple over the last decade; instead its economy faltered amid several stock market crashes. Naturally, investors bailed on AAPL stock as quickly as possible.
AAPL stock’s share price fell 22.23% year-over-year. Just let that sink in for a moment: the world’s most valuable firm lost more than a fifth of its market cap across a 12-month period. That’s a lot of wealth destruction in a short period.
I understand their rationale, but I still think investors are undervaluing three potential tailwinds for AAPL stock:
1. A Mountain of Cash
It’s a well-known fact that Apple has $216 billion of cash and cash equivalents in an Irish bank account. In fact, it’s so well known that investors take it for granted. We’re talking about more money than it would take to buy Twitter Inc, Tesla Motors Inc, and Time Warner Inc. Actually, it’s more money than it would take to buy those companies twice.
Regardless, this cash pile makes AAPL stock enormously attractive. The firm has returned $163 billion to shareholders between 2012 and 2016, giving it an impressively high return on investment. That may not be the most novel or exciting reason to invest in the tech firm, but it is the most sensible. (Source: “Apple Reports Second Quarter Results,” Apple Inc, April 26, 2016.)
2. Apple TV
Video streaming has become a staple in the television industry since Netflix, Inc. burst onto the scene. However, none of the new apps allow for browsing—that’s an element of television that people enjoy.
Not everyone switches on the TV knowing exactly what they are going to watch. In fact, sometimes they just like it on in the background as they cook or clean. Traditional cable suited those purposes because it was possible to flick through channels.
Apple has recognized this need. It is planning to launch a tailored video streaming service with live channels, including an ESPN channel for live sports.
3. Revenue per User
There are more than a billion active Apple devices around the world. AAPL stock is deflated because the firm is unlikely to keep expanding its consumer base, but that doesn’t mean the firm’s income will flatline. The company can squeeze more money out of each customer by providing more services.
Like what, you ask? Maybe video streaming, music streaming, digital payments—hold on a second, Apple is already doing those things! I guess they must have figured it out already.
The Bottom Line on AAPL Stock
Don’t get me wrong—there are some valid reasons for why AAPL stock took a beating this year. However, I don’t think the argument was as simple as people made it out to be.
Yes, “iPhone” sales dropped for the first time in a long time and yes, that is a bad sign. That being said, AAPL stock is only trading at 11 times it earnings. For a company with so many tailwinds, that seems a little low. That’s all I’m saying.