Apple has had a rough stretch lately.
First, the company recently reported its first decline in revenues in thirteen years. The iPhone, which accounts for nearly 70% of company revenues, has struggled amid a global smartphone market that seems to have reached saturation. Over the past three months, iPhone sales slid 16% from the prior year. Second, the impact of slowing demand for iPhones on Apple’s overall results is compounded by a lack of new products to offset the weaker sales. In Tim Cook’s five-and-a-half-year tenure, Apple has not had a materially successful new product (most recently, the Apple Watch has been a bust). Third, China, the company’s second-largest market, has a slowing economy and a government that has favored domestic competitors of Apple.
Last week, Alphabet (Google) passed Apple to become the world’s most valuable company in the stock market. With the share price down more than 30% since its peak last May, Apple shareholders, ourselves included, are concerned about the prospects for Apple stock.
There are two aspects to consider: the company’s business outlook and the stock. First, the business outlook might be better than it would appear. Apple has an enormous base of loyal customers for what might be the most valuable product brand in the world and claims an installed base of more than one billion “activated devices.” It has a steady business from iPhone upgrades and plans to sell subscription services, such as music (iTunes) and smartphone apps. Furthermore, the company remains in tremendous financial condition. Apple holds a net cash and investment hoard of approximately $150 billion, or 30% of the stock market value of the company.
And the stock? Despite being one of the finest companies in the world, Apple stock is selling at a substantial discount (nearly 50% by our estimate) to the overall stock market. As Apple has gone from being valued as a rapidly growing company to a mature one, we think it is an excellent value at current prices. Legendary investor Warren Buffett seems to agree. His company recently invested more than $1 billion in the stock.
Socially responsible investors are continuously pressing Apple to improve its environmental and social policies and performance. There is no shortage of issues to monitor, from labor and human rights to product recyclability to energy usage, but the company’s ability to excel on sustainability issues – when it decides to – keeps us invested. Some examples include the use of renewable energy to fuel 75% of the power it needs to run its worldwide facilities, global recycling collection rates of 85% for Apple products, and the development of strong processes for supply chain monitoring and transparency. Nonetheless, with a company of this size, complexity, and importance, we hope (and will push) for even more progress on sustainability issues in the future.
Revenues: $234 billion
Total Enterprise Value (stock market capitalization plus net debt)/EBITDA (cash generated from operations): 7.8x
Projected 3–5 Year Annual Earnings Growth: 6%
Dividend Yield: 2.4%
Stock 52-week Low–High: $89.47–$132.97
Risk: Below average