Apple Inc. (AAPL)

Equity
US
Technology

RISK

RETURN

Key risk factors

Negligible price volatility

Strong trading liquidity

Strong & resilient to price shocks

Key return factors

Very strong margins and returns

Greatly overvalued vs peers

Decent dividends

Company profileApple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod. It also provides AppleCare support and cloud services; and operates various platforms, including the App Store that allow customers to discover and download applications and digital content, such as books, music, video, games, and podcasts. In addition, the company offers various services, such as Apple Arcade, a game subscription service; Apple Fitness+, a personalized fitness service; Apple Music, which offers users a curated listening experience with on-demand radio stations; Apple News+, a subscription news and magazine service; Apple TV+, which offers exclusive original content; Apple Card, a co-branded credit card; and Apple Pay, a cashless payment service, as well as licenses its intellectual property. The company serves consumers, and small and mid-sized businesses; and the education, enterprise, and government markets. It distributes third-party applications for its products through the App Store. The company also sells its products through its retail and online stores, and direct sales force; and third-party cellular network carriers, wholesalers, retailers, and resellers. Apple Inc. was incorporated in 1977 and is headquartered in Cupertino, California.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

29.30

28.40

PEG

2.70

P/B

39.60

16.50

P/S

7.70

8.00

P/FCF

28.70

26.10

EV/EBITDA

23.20

22.40

From both historical and forecast perspectives, the stock is considerably overpriced compared to similar stocks. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 2ppts over six months and grown 10ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 215 and suggests 13% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 250.0. This translates into 31% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 164.0. This is equivalent to 14% downside potential in the worst case.

Profitability: Very strong

RoE

Apple Inc. reported a return on equity (RoE) of 135.4% in the last 12 months, down from 147.9% in FY22. The market consensus projects an RoE of 88.9% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 29.1% in the last 12 months, an increase from 26.1% in FY22. The market analysts predict that RoA will be 17.9% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 46.4%, above the peers. The consensus estimate for FY24 for RoCE is 34.3%, again ahead of the peers.

Net margin

EBITDA margin

Historically, AAPL has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 26.3%, a growth from 24.6% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 34.0% in the last 12 months, up from 32.3% in FY22.

RoIC / WACC = 6.4(excellent value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 6.4 in the past several years. This ratio implies a excellent shareholder value creation.

Growth: Average

Revenue

EBITDA

EPS

Free cash flow

AAPL reported revenue of USD 381 623mn in the last 12 months, down 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 0% from FY23 to USD 6.46. Market expects EPS to reach USD 6.59 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA growth has been weak. This all contributed to continued EPS growth (positive-to-neutral). The FCF trend is falling, a notch worse than EBITDA. We emphasize the highly volatile dynamics of EPS and EBITDA.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, and an unfavourable capital structure.

Volatility: Negligible

In normal market circumstances, AAPL is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, AAPL is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Very low

AAPL boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.