Apple & Long Term Perspective

The business model changed …

Growth appears to be plateauing …

P/E ratios are moderating and settling into “mature company” characteristics for this industry …

Stock price follows earnings.

How many times have you scratched your head over questions like these during your studies of companies? Our most widely-followed company, Apple (AAPL) turns out to be a pretty good study of changing conditions for company over a span of a few decades. Here’s the business model visual analysis.

Apple (AAPL): Business Model Analysis (1984-2020). Did you know that the road to “today’s Apple” and the mother ship piloted by Tim Cook was this bumpy and turbulent? There’s a couple of things that stand out — from the long term double digit growth to the years with negative earnings (1996-1997,2001) to what clearly seems to be a new trajectory over the last decade.

Apple (AAPL): Profitability, Net Margin (1984-2020). The volatile profitability of the company is on full display for 1984-2005. When speaking of shifts in business models, it can often be discerned from the profitability profile and Apple is something of a poster child here. Note the ramp up as the iPhone emerged as a ubiquitous necessity and the elevated net margins delivered over the last several years. This is how a company ends up with $80 billion in the check book after paying dividends and buying back 20-25% of shares outstanding.

Apple (AAPL): P/E Ratios (1984-2020). One of the things many investors have wondered about Apple over the decades is “Why the P/E of 10x or so?” The answer lies in the preceding roller coaster of bottom line (profitability) — a condition that inhibits P/E ratios for most companies. The P/E ratio has actually been pretty stable over the years, considering, and a case for low to mid-teens can be made and substantiated. One could also argue that continuing to maintain the current profitability levels could promulgate some higher P/Es …

One thought on “Apple & Long Term Perspective

  1. My problem with Apple is answering the question “What’s next”, in trying to forecast future performance. At what point does a “mature” company become another Polaroid, bypassed by faster, more adept, smaller innovators?

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