Apple Inc. is a phenomenon. One of the most remarkable companies in history. It makes products which I personally adore. It has revolutionized so many consumer markets, it's hard to overstate the company's effect on our lives. Steve Jobs once said he wanted to put a ding in the universe. And, in his unkindly shortened life, he did that and more.
So I'm an Apple-fan. An Appleholic. But I'm a professional fund manager and I don't like losing money (which is probably why my investors like me). And despite all my admiration for everything appley, that admiration does not extend to its stock price at these levels.
First the facts. The company's stock price is, at time of writing, slightly over $629. That gives the firm a market capitalization a shade under $600 billion. The company has just announced its first dividend payment (but is accumulating cash at an astonishing rate all the same). It has a cash pile of around $100 billion.
More important still, the firm trades at a seemingly modest multiple of profits. Thomson Reuters calculates that Apple trades on a forward price/earnings ratio of just 14.3. That means that the firm's valuation is equal to just over 14 times the profits it is expected to earn in the year ending September of this year. That's higher than the market more broadly, but then the market isn't composed of companies growing as outrageously as Apple. It isn't composed of companies as innovative, as financially solid, or as dominant in their niches.
And meantime, every time the company brings out a new set of financial results, they seem better than anyone ever thought possible. It's the world's biggest company and it's growing like crazy.
No wonder then that there has been speculation about whether Apple could become the world's first trillion-dollar company. And it could do. Clearly it could. You wouldn't have to stretch that earnings multiple all that far to see a trillion dollar market cap. It could easily happen -- some think it might even happen this year.
But that doesn't mean you should buy into the story. In part there's room for real doubt about the degree to which Apple's results are appropriately conservative. But that's not the main part of my concern.
Below, I've included two graphs. The first shows Apple's recent price history -- basically a steep ascent since 2009, then a parabolic spike this year. It's the sort of graph which makes you wish you'd bought into the story sooner. (If you'd bought in December 1995, you'd have made 7778 percent.) And those are the sort of facts which might tempt you to think 'better late than never' as you plunge your family's hard earned cash into the stock.
The second graph tells the tale of another stunning company. A technology leader that dominated its market. That sat on top of one of the fastest growing consumer markets in history. That company was Nokia and the graph tells you everything you need to know: a stock price that started at two bucks and something, ran all the way to $40, then fell back and back and (after one further unsustainable boom) ended up at $5 and something.
Looking at this graph, you might think that Nokia's leadership did well for a while, then lost its way. But that's not the right conclusion, not really. Mostly what you're looking at is capitalism in action. If a company makes a huge pile of money, there will be a load of smart, well-resourced competitors coming to eat that pie. Those competitors may not be as smart, as innovative -- but they don't have to be. They just have to get close. They have to produce products that are almost as good... and a fair bit cheaper.
You don't need much of that competition before Apple's 44 percent gross margins become utterly unsustainable. You don't, for that matter, need too much more negative publicity about slave-style labour at Apple's supplier's plants in China for production costs to start ramping up.
And these things are already starting to happen. I've seen a consumer review for the HTC One X which raved about it. I don't know if that phone is better or worse than Apple's more famous version (I'm guessing worse), but I do know that HTC will be using its price advantage to gain market share.
Apple's enormous margins are one of the most impressive features about the company, but in a competitive marketplace they're also acting like a huge flashing sign saying, 'Please Mug Me Now.' That's not true of all big companies. Exxon drills for and ships a product of which there is a limited supply and for which there is a near-infinite demand. Much as its competitors would like to ramp up their production to eat Exxon's lunch, it ain't that easy. Apple makes a product where supply can be expanded indefinitely and where consumers will, in the end, prefer a nice gadget at a low price instead of a nicer gadget at a high one. That makes it vulnerable.
Me, I'm an Appleholic. I love their products and always will. The stock price though? For me, that's a punt too far. If the market cap hits a trillion bucks, I'll be shorting the stock like crazy. I don't like bubbles -- and this one's looking frothy.
Mitch Feierstein is the author of Planet Ponzi and CEO of the Glacier Environmental Fund.
Follow Mitch Feierstein on Twitter: www.twitter.com/PlanetPonzi
They reached 'the top', and just sat there, ready to sell you feature phones and Smartphones with Stylus's and mini keyboards for the rest of your life. They thought it was a race, with an 'end', and a 'winner'. The race never ends, you can't be complacent.
Nokia has phones.
No desktops, laptops, tablets, MP3 players, music store/app store, Retail stores, TV interfaces, etc. they're just now answering the original iPhone of 2007. Good luck.
The problem is, what is HTCs 'price advantage'?
You're still thinking of Apple as the 'little engine that could', operating as a boutique electronics marketer, with proprietary hardware, etc. Not quite. If it came to a price war, Apple would win these days. They're the biggest user of Flash RAM, for example, and that's an advantage OVER HTC.
It's the Android Army that has the problem. It's not a unified army, it's every man for himself! It's cutthroat. Other than Samsung, most Android makers are hardly making money, and now they're looking at Google as a threat, having bought Motorola.
• He has no knowledge of AAPL's value drivers; his fund has never held the stock.
• He has never used an Apple product; ever.
His article is underinformed and irrelevant to all but those who, like him, need to self justify their failure to profit from the rise of Apple.
Perhaps you have a point.
"He has never used an Apple product; ever." How do you know?
By the way, I am 10 years old.
Peter Oppenheimer, Chief Financial Officer, sold 80,147 shares for $48.0 M
The CFO of Apple is probably worth a bit more than 50 Mil!
There were always insiders selling. Should I have sold when some insider sold at $20, or $120?
Besides, if they "know something" bad, and sell because of it, they can lose it all in SEC charges of Insider Trading.
This is always the most ridiculous thing to pay attention to!
The dynamics of Apple's strategy, before and after Steve (RIP) Jobs, are relatively clear: the company always tries to position itself "shortly after first to market," after the Sony Walkmans have come and gone, and to make its move with a much more highly-refined offering than any of the previous explorers had done. Heck, even the Apple ][ had that key characteristic in its day. The resulting stock behavior was feast and famine and feast again. The only drawback of the strategy is that "shine" does not last long.
However, there is an under-current of Apple's strategy as well ... an under-current brought about in part by people =other= than The Steve. The products e.g. the laptops are extremely well made, and the software environment IMHO beats both Windows and Linux hands-down in terms of overall refinement. They have a no-kidding warranty and a widespread service and repair infrastructure whereby you really can just walk into the mall and get your problem dealt with. This is the "deep structure" of the company, to which it will return when the current mania finally ends.
Most conservative analysts are at about $800 for Apple.
Some are now at $1000.
We all will know you are correct if the stock goes down, but how much higher does it have to go before you are simply wrong?
So while it's not a finite, consumable resource like oil, the highest-end electronics is likely to remain a resource in "finite supply". And the few majors who have invested heavily will the best access to the lion's share of the supply.
It's the SALES that are taking off like a rocket and not just the stock price.
The great unknown is the TV.
If the TV is also a smash then there is no holding Apple back.
If it's a flop then "Apple can't win without Steve Jobs."
But Yes I would continue to buy the stock at this price.
I'm sorry, but this is nonsense. I'm all for being cautious and I applaud your attempt to be the Devil's advocate in a time of unbridled optimism. But if you're going to attack Apple, you're going to have to do much better than this.
Apple has ALWAYS had high margins. This is not some historic anomaly. More importantly, since the iPhone came out in 2007, Apple has maintained margins of approximately $660 per unit sold. And remember that this was done exactly during the time when Android rose to prominence.
Apple may have to cut its margins someday and Apple stock may drop someday but that is just speculation. You haven't provided a shred of evidence to support that scenario. You've just said that it may happen so it's probably going to happen.
That's not analysis. That gossip.
The comparison with Nokia is particularly inapt. Nokia did not produce products that disrupted their competitors business models (as Apple did with the iPod, the iPhone, and the iPad). Nokia had competitive advantages over its rivals, but never sought or held the tight control of its supply chain that Apple now commands. Tablet makers in particular have not (yet) been able to offer a similar product at a competitive price simply because they cannot MANUFACTURE their products as cheaply as Apple. For much of its supply chain (particularly for flash memory and high-quality screens), Apple is effectively a monopsony - a buyer so large and powerful that they control the market.
None of this means that these advantages will always remain - companies fall, and Apple's stock price will one day return to earth. But when it does, it will do so because it has been genuinely out-competed, and we will be able to SEE IT HAPPENING. Right now, there is no viable competition in sight.
That's not even close to being true. The Samsung Note is, by far, the superior phablet when compared to an iPhone. Samsung seems to be selling a million of them a month now.
What's worse for Apple, though, is that it may be the device to prove that "larger is better" is the new "cuter is better". And if that's the case, Apple will have to make a decision very quickly about its next products, before they find themselves stranded without a phablet.
Samsung product strategy executive Hankil Yoon speaking during a media roundtable in Feb 2012 at the Mobile World Congress in Barcelona, Spain.
(Credit: Roger Cheng/CNET)