AAPL : AAPLE INC | Fundamental Analysis | Alternative Scenario

According to some investors, Apple may have lost its investment attractiveness. Since it has been about 10 years since Steve Jobs stepped down as CEO, one would assume that the company is past its best days.

With a market value of more than $2 trillion, it's much harder to grow at a rate that will make new investors millionaires through modest investments. But is that reason enough to refuse to buy stock of this company?

Apple's management now uses its accumulated vast resources to work and apply its expertise to continue producing attractive products, managing new services, and developing new industries, which still gives investors plenty of reasons to buy Apple stock and never sell.

Of course, the death of Steve Jobs in October 2011 left the company somewhat of a void. In the years that followed, the company's new products seemed to make it more of a competitor than a leader in the technology industry.

Nevertheless, the development of new products did not stop. The Apple Watch was introduced in 2015 and has evolved into an innovative product that can do incredible things, such as collect health data from users, track heart rate and blood oxygen levels, and even automatically inform others when a user loses consciousness. These advances bring innovation to health care and have the potential to save lives.

Apple has greatly expanded its services business. It includes the App Store and offerings such as iCloud, Apple Music, Apple Pay, Apple Arcade, Apple TV+, Apple News, and Apple Card. The success of the services segment pushed it into Apple's second-largest revenue category, accounting for 16% of revenue in the first half of fiscal 2021.

Apple's multi-year offerings also continue to be innovative. The iPhone remains the main revenue driver, accounting for 56% of the company's revenue in the first two quarters of fiscal 2021. Although the company did not release its first 5G smartphone, the release of the iPhone 12 helped Apple launch the 5G industry. One of the beneficiaries, in addition to Apple, is Qualcomm, which makes the chipset that powers the latest iPhone. Qualcomm's growth began after Apple and Qualcomm settled their legal disputes in April 2019, and there was another jump after Apple released the iPhone 12 in October last year.

The negative economic impact of the COVID-19 pandemic forced millions of people to work from home and supported Apple in yet another way, sparking renewed interest in some of Apple's older products. In the first six months of fiscal 2021, iPad sales were up 57% from a year ago, and Mac sales were up 42% in that period. The Mac also benefited from product development as it switched from Intel processors to Apple's own M1 chip. Clearly, Apple remains a vigorous and competitive company.

This resilience has bolstered the company's financial performance. In the first six months of fiscal 2021, net sales were $201 billion, up 34 percent from the first six months of the previous fiscal year. During that time, net income rose 56% to $52.4 billion, as Apple limited its growth in operating expenses (they rose only 12%). This ability to manage expenses well, even on such a large scale and in the face of greater negative economic impact, allowed Apple to generate about $57 billion in free cash flow during these six months.

Because of this free cash flow, Apple maintains one of the most robust balance sheets in the world. While the company's total debt of $121.6 billion may seem significant, the company borrowed money not because it had to, but because the likely profits exceeded the cost of borrowing. With liquidity at $204.3 billion right now, even if Apple had to pay off all of its debt today, it would have about $83 billion in cash and cash equivalents left over. Thus, the company is well-positioned to overcome unforeseen difficulties, strengthen its business lines or create new businesses. Thanks to this, Apple's share price has risen about 75% in the past 12 months.

Apple's earnings are now generating a P/E ratio of just under 30. It's a significant increase for a company that for most of the 2010s has been unable to raise its P/E ratio above 20.

Nevertheless, its valuation is now quite comparable to that of other tech giants such as Microsoft and Google's parent company, Alphabet.

Of course, a market value of $2.15 trillion might scare off some growth-oriented investors. For a new investor to double their money in Apple stock, the market value must rise to $4.3 trillion. That's quite a challenge when the market value of not a single company has yet reached $3 trillion.

Despite its scale, Apple continues to produce innovative products, and the demand for these products continues to generate enormous profits and cash flows for Apple. With its enormous market capital, it will be much harder for this technology company to create as many millionaires in the future as it has over the past decade. Nevertheless, both new and longtime Apple supporters can expect Apple's growth story to continue at some level for years to come.