Motley Fool: Now might be a good time to buy Apple

From Daniel Foelber’s “Up 600% in 10 Years, Here’s Why Apple Stock Is Still So Cheap” posted Tuesday on the Motley Fool:

Apple has been one of the few major tech stocks that have held up during the Nasdaq Composite bear market. Yet even Apple is now down over 20% from its all-time high as its share price dipped below $140 on Thursday for the first time since June 2021.

While it’s true that Apple customers may be less inclined to upgrade their devices to the latest models during a recession, there’s no denying that Apple’s consistent growth and profitability should continue for decades to come. Despite being one of the better-performing tech stocks, up over sixfold in the last 10 years, here’s why Apple stock is still surprisingly cheap. And why now may finally be a good time to take a bite out of Apple stock.

Apple continues to grow its integrated suite of consumer products while demonstrating pricing power and unrivaled customer loyalty. Its growth in aftermarket services has kept customers engaged and spending money even if they aren’t buying Apple’s latest tech. That growth has led to improved profitability even as the company’s revenue and earnings are magnitudes larger today than just five years ago…

Seldom can a stock produce incredibly outsized returns and still not be overvalued. But Apple knows how to make money. Plain and simple. And what cash it doesn’t use to reinvest in its business usually gets put to work buying back stock.

There are many excellent Apple charts. But my personal favorite is the 10-year chart showing shares outstanding and Apple’s net income.

My take: Net income goes up, share count goes down. Nice business, if you can manage it.

12 Comments

  1. Alan Levy said:
    Apple has bought a third of their shares in the last ten years. Had no idea it was that much!

    2
    May 17, 2022
    • Chris De Armond said:
      @Alan
      More actually. The September 2012 10K lists diluted shares outstanding as 945,355,000 (x7 x4 for stock splits) = 26,494,940,000 which using 16.32 billion (from the chart above) gives a ratio = 0.617 or 38.3% reduction in shares outstanding. By the end of this fiscal year it should hit 40% or 4%/year average over the last 10 years.

      3
      May 17, 2022
  2. Daniel Epstein said:
    Actually two basically unrelated pieces of Data. Total net income tells you about the performance of the company regardless of the number of shares the company has outstanding. The growth in Net income has been impressive but not steady. If Apple continues to smooth that out and grow then the company is well set up for the future. A very good reason to own Apple Stock.
    The shrinking of the share count (which has been adjusted for splits I believe) is a different metric. It does effect shareholders value, the P/E ratio, earnings per share and how one calculates the Market Cap among other things. As a capital return program the share buyback has become Apple’s biggest investment of its excess cash and profits. It tells you very little about the company’s growth. Mostly an attempt to avoid double taxation of profits and give the company flexibility in how and when it is deployed. The success of the company to continue to buyback shares while heading to cash neutral is another reason Apple Stock has been a good value.

    4
    May 17, 2022
  3. Fred Stein said:
    The chart says, despite some ups and downs, total earnings went up 150%, or 10% CAGR, while share count dropped 37%, or 3% annually.

    Patience Young Grasshopper. The market will come around to Buffett’s thinking, that Apple is the best place for your money.

    4
    May 17, 2022
    • Chris De Armond said:
      @Fred

      I believe you mean AGR not compounded. Compounded over 10 years 10% growth is more like 260%. We can only wish for 10% compounded.

      0
      May 17, 2022
  4. Chris De Armond said:
    PED says this is his favorite chart, and I like it a lot, too. The discussion here about what the chart shows misses, to me, the BIG picture. The big take away for me from this chart is the massive (nearly vertical line on the graph) change in Net Income (TTM). That $40 billion plus change in five quarters (thank you, pandemic) makes a lot of charting comparisons using the past five or 10 years an exercise in futility. I’d think all (chart) comparisons will need to be reset to compare from end June 2020 (see the starting bump for September 2020, ending Apple fiscal 2020) going forward to effectively show the “new” Apple post-pandemic reality re-set.

    2
    May 17, 2022
  5. Jerry Doyle said:
    Beautiful chart! I say Apple keeps on keeping on buying back all its shares & going private like “Dell?” Just give us a big payout premium 🙂

    1
    May 17, 2022
  6. Steven Philips said:
    Jerry: when the stockholders are down to just Apple 3.0. Subscribers (and Buffett, of course.) that payout will be REALLY big! 🙂

    2
    May 17, 2022

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