What’s going on today. Everybody hope you’re having a great day today. In this one today, we’re going to be taking a nin depth, look at Apple stock to figure out whether or not it’s a good buy at the current price. So I’m going to start by giving you an update regarding some of their recent activity, and then we’ll dive into some financials and really go through some valuation metrics. And if you could do me a huge favor, So Apple is an American technology company. https://worldgraphics20.com/2020/10/24/best-32-inch-android-technologies-led-tv-in-2020/
They design develop and sell consumer electronics, computer software and online services. And they’re considered one of the big tech companies along side Amazon, Google, Microsoft, and Facebook, Apple share price has sky rocketed last year, over 100% and into the beginning of 2020.
And it looks like they’re picking up right where they left off year to date share pricesare up over 15% from $300 to about $350, which is an all time high. And they’re up nearly 90% over the last 12 months with a 52 week low of $182.
So during the, uh, initial market crash earlier this year, sheriff price has reached a low about $220. you know, that I was a huge advocate of picking up Apple shares after they dipped below $250. https://worldgraphics20.com/2020/11/28/15-clear-signs-your-iphone-was-hacked/
So if we take a look at this comparative chart, you can see that year to date. Apple has out performed the NASDAQ by a relatively significant margin, which by the way, just hit an all time high and past 10,000 for the first time. And they’ve out performed the S and P 500 by a wide margin as well.
Similarly, if we take a look at the performance of five of Apple’s top competitors, Sony, Dell, HP, Microsoft, and Google, you’ll see that excluding Microsoft Apple has out performed all of its competitors by a wide margin in terms of share price year to date for the latest quarter, Apple reported quarterly revenue of 58 point $3 billion, which is an increase of 1% fromthe year ago, quarter and quarterly earnings per share of $2 and 55 cents up 4%. https://worldgraphics20.com/2020/11/28/9-tips-to-protect-your-data-on-your-smartphone/
And inrecent news, Apple announced a new cheaper iPhone model back in April called the iPhonese. And this model is the second generation of its kind. They released the original iPhonese back into 2016 and after many requests for a cheaper model, the phones based model starts at only three 99.
Also in the beginning of June, Apple opened up approximately 100 stores in the United States after having previously been shut down. And there’s been a focus on their genius bar, which allows customers to get service and support for broken iPhones, as well as other products. https://worldgraphics20.com/2020/11/27/best-galaxy-s21-new-exciting-feature/
And the reason I mentioned this is because everything with, you know, with everything going on Apple did not give guidance for fiscal Q3 saying, quote, we really didn’t feel there was enough visibility and certainty to provide guidance.
I also want to high light that as of June 9th reports came out saying that Apple is planning, announce plans to power its Mac computers with its own processors, instead of Intel chips, which they’ve been using since 2006, currently they use their own processes for all of their iPhones and iPads.
And the reason that I think this is important to watch this because many of Apple’s competitors, Microsoft, HP, Dell delts name, a few use Intel chips. So if Apple is able to develop a better, more powerful processor, they could have a significant advantage over their closest competitors.
And then lastly, here Apple reported on June 9th that they plan to begin production on the iPhone 12in July of 2020, and share prices were up over 3% on the day after that news Brook. So with an update on some recent Apple news, let’s go ahead and just take a look at some funda mentals and valuation metrics and dive into the spread sheet that I’ve put together.
All right. So this is a spread sheet that I’ve put together. And first I want to start with the income statement, and this is basically going to show us the company’s revenues and expenses over a particular period of time.
And in this instance, I’ve gone ahead and pulled out revenue, gross income, operating income and net income numbers for the previous five years, so that we can get an idea of how revenue and profits are growing or shrinking.
So starting with revenue, whichis the total amount of income generated by a company for the sale of its goods or services before any expenses are deducted. We can see that revenue actually fell slightly from 2018to 2019. but the, over the last five years, the compound annual growth rate for revenue was about 2%.
And this tells us essentially how much revenue grew per year on average over the last five years. Now, if we take a look at the compound annual growth rate for the last three years, you’ll notice that it’s actually higher at 4%, which tells us they’ve grown revenue at a faster rate recently.
And we’ll compare this number to the overall technology sector later in the artical to get an idea of how they stack up to the rest of the sector, because that’s something that’s super important to understand.
Now, in addition to revenue numbers, it’s important to look at income and profit margins. So taking a look at gross profit, which just a quick definition is the profit a company makes after deducting the costs associated with making and selling its products or thecost associated with providing its services.
We can see that total gross profit has been growing over the past five years, at about 1% and 4% over the past three years. But if we hop over to the gross profit margin, which shows the amount of profit on a dollar of sales before subtracting operating costs and other expenses, which we’ll get into in a minute, you can see that gross margin shave declined steadily over the last five years.
So, without doing further research, I’m not sure why this is let’s work through the other numbers to see if there are any trends that we noticed. And just to note, 38% isn’t really, you know, is really nota, a high number, a high gross margin for technology company.
So just worth mentioning. So looking at operating income and operating margin, and, and just a quick definition again, operating income is the sum total of a company’s profit after subtracting its regular recurring costs and expenses.
And this includes things like depreciation of assets, office supplies, you know, rent costs, property taxes, advertising costs, et cetera, et cetera. And then operating margin measures how much profit a company’s making on a dollar of sales after paying for those regular recurring costsand expenses.
So looking at operating income, you’ll notice it stayed within the, uh, within the same range over the past five years. And even with revenue numbers increasing at afaster rate, this has led to a steady decline in operating margin over the last five years, which is interesting because we also know that gross profit margin has been decreasingas well, which tells me that more than likely, it’s costing them more money to make and sell their products for whatever reason.
And that would appear to be a big reason as to why operating margins have taken a hit as well. Now it’s important to understand that unlike a lot of their peers, Apple earns their profit, not on great or fantastic profit margins, but on the pure volume of sales that they have. And you’ll see what I’m talking about when we break down revenue by business segment. So doing further research into why Apple’s margins have been shrinking there, there really are numerous reasons for the decline.
Twoof which have been in increase in research and development, and then an increase in its selling general and administrative costs. Not only that, and although the iPhone, you know, remains Apple’s top revenue driver, which again, we’ll get into momentarily.
The company’s also bridging out and trying to improve its services segment, which comes with a lot of competition. And one of the things that we know about competition is that it can often drive down prices, which in turn lowers profit margins. In addition to that, back in 2018, Apple actually reported that a reason for shrinking margins was as I suspected due to higher product cost structures now, because Apple gets over half of their revenue from outside of the United States.
There’s also a macro perspective that you need to understand as well, which again, we’ll get into shortly. So the last thing here thatI, that I like to look at is the net profit margin. And this is the total profit. Afterall expenses are subtracted, everything from cost of goods, sold, operating expenses, other expenses, interest taxes, et cetera, et cetera.
And you’ll notice that the net profit margin spent essentially unchanged over the past five years, which is a good thing because21 to 22% is a perfectly healthy profit margin for company like Apple. So we’ve looked at Apple’s performance over the last five years.
let’s dive a little bit deeper and lookat a breakdown of revenue numbers by quarter over the last two years or so. And one of the things that you need to realize here is that, Apple is fiscal year actually ends the last day of September.
Best Apple Stock Analysis in 2020
So that’s the end of their Q4. So Apple’sfiscal Q1 is actually the end of the year. however, in this case, I’m using the calendar year to break down each quarter, not the fiscal year. Uh, so technically calendar Q4would be apples. Q1, not all companies will have fiscal quarters that corresponded to calendar quarters.
And I find that for me, when I’m breaking down numbers like these, it’s easier to use the calendar quarter so that I can understand that time of year we’re talking about. Now, the first thing I noticed when I look at these numbers is that by farand away, uh, the end of the year is Apple strongest quarter. And this is not uncommon to see due to the time of year with the holidays and everything that’s going on.
we can verify this by taking a look at Apple’s most recent annual report and looking under seasonality trends. And we can see that quote, the company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due to due in part to seasonal holiday demand.
Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses. So that makes a lot of sense. This tells us that these numbers aren’t just random outliers, but that they’re likely to reoccur year in and year out. Okay. So I just wanted to provide you with a glimpse of kind of how their revenue numbers are broken down by quarter.
notice the trends that we can see now hopping over here to a breakdown of revenue numbers by business segment. And this is incredibly important to do because we want to see whatis driving revenue numbers or what’s causing them to shrink. So iPhone sales saw a significant decrease in 2018 into 2019.
Now this is interesting to me and, um, I’mjust going to speculate that there are multiple reasons for this number one, the high pricepoints of iPhones and number two customers are waiting for the release of five G phones before spending big on another phone. And then third, actually I think what we’re seeing and have seen is a global decline in smartphone sales overall.
And you can see the chart onthe screen that actually that actually shows that one of the main reasons for this is simply the fact that people are willing to hold onto their phones longer now a days because the technologyis better and it, you know, it lasts longer. So moving on max sales have been pretty stableover the last three years.
you know, not much change there and this will be interesting to watch in the future because as I mentioned earlier, it sounds like Apple will be using their own internal processes for their Macs starting sometime in 2021, as far as I’veheard. So if they are able to gain a competitive advantage over their, over their competitors, we could see max sales, you know, havea slight up take into the future.
They’ve seen a ton of growth from their wearables home and accessories segment and services segments. And here you can see a breakdown of each segmentin the products that it includes. The wearable segment is being driven by products like airpads, which has become incredibly popular. I don’t know about you, but like let’s say I go to the gym.
For example, every other person I see is wearing AirPods as well as products. You know, like the Apple watch are driving the wearable segment on the home andaccessory side revenue is driven by various platforms that allow customers to discoverand download applications and digital content like books, music, video, videos, games,and podcasts.
And of course, Apple TV plus is primed to be a big revenue booster intothe future, although that was introduced toward the end of 2019. So, you know, there’s not, that’s not reflected as much in the 2019 numbers, so you definitely want to have a feel for not only revenue and margins as a whole, but really what’s driving those numbers.
And something I want to highlight here is the incredible business model that Apple has not, not to mention their ability to effectively market. Their products are one of the best companies. And when it comes to marketing that we’ve ever seen, roughly 100 million people in the United States alone own an iPhone and nearly 1 billion people globally own an iPhone.
And this gives Apple the ability to sell all of their other products, which there are a bunchof, uh, to already exists to an already existing customer base, which is incredibly powerfulnow, just to touch on the macro side briefly and look at a breakdown by geographic segment.
And this is important because like I mentioned, over half of Apple’s revenue comes from ou tside of the United States. You can see that Europe and China combined, in 2019 at least, uh, account for close to a amount, the amount of revenue that Apple generates in the U S and, and I want to highlight what I want to highlight here is the drop off in revenue in China from 2018 to 2019.
Part of this is due to the on going trade negotiations between the U S and China, which were at a peak during this time, there was also a study done by a credit Suisse that, that I’d like to reference that showed that demand and enthusiasm for iPhones in China is down significantly over the past couple of years, which is interesting.Now, from a macro perspective, if we take a look at China’s GDP annual growth rate,you can see that it’s been steadily declining for the last 10 years.
Not only that, bu twe also know that a weaker us dollar means that Apple can make more money and potentially lower prices of their goods or services, which could impact demand in places like China. But what’s important to note here is GDP.
You know, that’s, that’s an indicator of how well the economy in China is doing, and obviously that’s going to trickle down to the average everyday person. So, um, could that be a reason for the demand drop in iPhones? It could be. It could also be that, like we said earlier, there’s high price points and the technology’s better that people are just holding onto their phones longer.
I’m not going to go too much into this just in the interest of time. It’s,it’s certainly important to be aware of, especially for a company that doesn’t necessarily have spectacular profit margins and does so much business outside of the U S like Apple does. Okay. So moving on and taking a quick look at Microsoft’s balance sheet, let’s go throughit briefly.
There are, there are a couple of numbers specifically that I want to pointout and Hey, just as a reminder again, so keep in mind, all of these numbers on this sheet are in millions. Now, again, I’m not going to go through every line item here, um, in the interest of time, but at a minimum, you need to take note of both total assets and total liabilities and current assets and current liabilities.
So assets in a quickdefinition, your assets are the things a company owns. And this includes stuff like buildings,uh, machinery equipment, as well as intangible items like accounts receivable or intellectualproperty, uh, in liabilities or something that the company owes.
This could be a, this could include debt or loans, uh, accounts payable and accrued expenses, right? So youcan find, uh, total assets. you can find that number right here, and then for a Colonelor a total liability, you can find that number right here. Uh, and then the other thing ishis current assets are the assets which can be converted into cash within a period of12 months. Current liabilities on the other hand are liabilities that can be disposed of within 12 months. thankyou for read this artical.