What do we get when we buy NASDAQ:AAPL shares for a valuation of $3 trillion?
We get $100 billion in free cash flow. (3 year average free cash flow is ~100B)
Over 10 years revenues have more than doubled from 170B in 2013 to 383B and debt has jumped from 17B to FWB:95B to pay dividends and to buy back stock which has dropped from 26B shares to under 16B shares.
So, if you get another 10 years of this performance, NASDAQ:AAPL free cash flow will reach 200B and provide a 6.6% free cash flow yield.
You can already earn 10% free cash flow yields in hundreds of other stocks now and not 10 years in the future.
We don't need to predict the future movement of Apple shares but instead we need to know what our probabilities are and make our decisions accordingly.
I have been a big fan of Apple products and use iMacs, iPads, iPhones and have used ApplePay a bit lately. My first Apple was the Macintosh in 1986 back in college and then the Apple LaserWriter which was a revolution in printing. I even used Macintosh on the trading desk at S.G. Warburg & Co, Inc (Now UBS) and my quotes were faster than the fastest Wall Street computers at the time. So I have plenty of good memories and have been an advocate for Apple my entire adult life (40 years so far).
My question here is: What upside is there remaining for NASDAQ:AAPL? What is the risk of hanging in there for that upside? What is a better return available for your investment capital?
The answers to these questions are unknown, of course, but are the key answers to seek.
The chart above is first 1. Stock Price 2. Free Cash Flow FY 3. PS Ratio 4. Avg Basic Shares O/S 5. Total Revenue FY 6. Market Capitalization
These are the key factors to track over long periods of time and now with inflation over 10 years as high as it is, the inflation factor is even more important to find the companies that can increase prices to match inflation and which are struggling under heavy competition and no ability to cut costs and raise prices.
This is a great time to ask yourself the key questions and decide to re-allocate your NASDAQ:AAPL investment into many other, more attractive investments.
Time will tell if that was wise or not, in hindsight.
Wishing you all peace and prosperity.
Tim
January 22, 2024 12:37PM EST
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The classic research on PSR tells us that the long term PSR falls to 1 as the company grows so large that there is less growth potential and competition. If you look at NASDAQ:AAPL PSR here at close to 8 means there is tremendous long term risk for holding NASDAQ:AAPL shares.
A PSR of 8 using some classic rules of investing which suggests that you pay 1x sales for each 10% margin and each 10% of growth.
Does NASDAQ:AAPL have 8 units of margin & growth? No. So how does it balance out?
Time: People are investing to look further out in time and discounting further back in time to the present to get the valuation to justify.
The other factor that keeps stocks afloat is fear to pay capital gains taxes because if you never sell, you never have to pay capital gains taxes. Because of that reality, stocks are more vulnerable at the beginning of the year than at the end of the year.
So, to repeat, a stock's PSR is 1 when it has 10% margins and no growth or 5% growth and 5% profitability, as examples. A PSR of 2 would be a combination of 10% growth and 10% margins. A PSR of 8 would imply that if a company has 10% growth and 10% margins (for a 2 PSR fair price) would need to grow for 7 years and raise margins to 20% to justify the valuation.
So, what we really need to analyze the market is an indicator which shows us "Years to Fair Valuation" to show just how far out in time investors are discounting to get exposure to stock earnings.
Food for thought.
Cheers,
Tim Wednesday, January 24, 11:43AM EST
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The lack of interest in this NASDAQ:AAPL valuation analysis is a sign that I am saying something very unpopular. Be wary of any analysis that is popular and keep on the lookout for ideas that are unpopular. There are so many stocks with extreme valuations implying many years of uninterrupted growth with rising profit margins. Be very careful.
Tim Wednesday, February 14, 2024 10:03AM EST
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The drop in NASDAQ:AAPL here today down a little bit to $170 from $180 over the last two days may seem like a big drop, but it isn't. Look at the historical range of valuation for Apple and see where it has bottomed out in the past, even during bull markets.
If we look at 2x sales, 2.2x sales and 2.6x sales over the last 10 years for good levels to buy, that is dramatically lower than current levels. Interest rates are higher now than back then and China isn't as strong of a growth opportunity as back then either.
No more Apple EV either and Vision Pro is expensive and will be a great product for many purposes but it can't hold up the valuation alone.
Time will tell. I don't have the answers that's for sure. All of us are more wise than any one of us. So let's keep sharing here at TradingView so we can all help each other.
apple has branding better then any other company.I thought vr was a mistake and it looks like good add. sold out of all pre order units in one hour at 3500$ a pop. Now that is something not many logos can do. it will go right in the eco system as all the other hardware we can't live without.I once stood in a Apple store in NY trying to ask a rep a question on a product as i stood there I watched a an air pod Cue to the side of me sell 22 pairs of this 200$ product in the 4 and half min. wait, it was like cigarettes at a news stand. now the on Thing I Fault them on was slow playing the home AI because they where out with Siri a couple of years before Alexa stole the home market from them. Other then that they make a superior product with real customer service and user friendly designs that even my 80 year old mother was able to navigate. So I will be leaving my Apple shares to my Daughter who will be wealthier then me..
timwest
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@Cbnyc, I don't doubt the power of the Apple brand. I have been an Apple fan since the 1980's. I was an Apple Laser Writer (laser printer) owner in college and an Apple Mac owner too. I was a huge fan and it took 20 years for AAPL shares to do anything. It took iPhone for things to get really interesting. If you sell and pay capital gains and invest in something else, it makes things more challenging. But if you have fresh capital to invest in stocks, I would hold off on AAPL here and look for a better price.
basictradingtv
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I sill believe in the long term growth of Apple. What worked in the past will also work in the future🤑🤑
timwest
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@basictradingtv, I believe in the company and I try to explain that the returns offered by owning shares are lower than average from this level of valuation. The risks and rewards of investing are constantly shifting with the passing of time. There are always new companies with new products that are reaching the market and those provide the highest compounding of capital over the long term but also a great potential to not work out. This is a good time to look at AAPL as an investment to sell 5%-10% a year to reinvest in new ideas that offer more long term growth potential.
jds111312
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Thanks for posting! It’s good to see different opinions about the same stocks. Maybe you could do a post about the PSR? Just started following, don’t know if you have done one.