Thematic evaluation
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Apple, Inc. (AAPL)

October 15, 2024

Compared to: Meta Platforms, Inc. (META) | Alphabet, Inc. (GOOGL) | Technology Select Sector SPDR Fund (XLK)

Our reasoning

Apple's current valuation appears fair, balancing its strong financial performance, brand strength, and growth prospects against risks from slowing iPhone sales and regulatory scrutiny. While some metrics suggest slight overvaluation, others indicate potential undervaluation, and the company's robust ecosystem and innovation potential provide support for its current market price.

Key takeaways
  • Apple's revenue growth is decelerating, potentially due to market saturation or macroeconomic headwinds.
  • The company is facing pressure on its operating margins due to rising operating expenses.
  • Despite the decline in profitability, Apple is still maintaining a strong gross margin, indicating its ability to manage costs effectively.
  • Apple's liquidity position is strong, as evidenced by the increasing cash and short-term investments.
  • The company's short-term financial health is healthy, as indicated by the decreasing short-term debt and total current liabilities.
  • Apple's long-term solvency and financial stability are strong, as indicated by the decreasing long-term debt and increasing total shareholders' equity.
  • Apple's cash flows are generally increasing, driven by its stable business model and efficient operations.
  • The company's free cash flow is expected to continue to grow, providing ample resources for debt repayment, dividend growth, and investment in organic growth opportunities.
  • The company's announced strategic initiatives, such as the development of "Apple Intelligence," are expected to drive future cash flow growth.
  • Apple's strong ability to generate profit relative to its assets, equity, and invested capital is a positive sign.
  • Apple's current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.
  • The company's reliance on outsourced manufacturing and complex global supply chain leaves it vulnerable to disruptions that could disrupt product availability and sales.
  • Apple is facing intense competition and regulatory scrutiny in its core markets, which could impact its ability to maintain its market position and profitability.
  • Overall, Apple remains a financially strong company with a solid track record of innovation and growth. However, the company faces challenges in maintaining its revenue growth and managing rising operating expenses.
Fairly valued
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Evaluation summary

  1. Company Overview:

    • Apple, Inc. (AAPL) is a multinational technology company that designs, manufactures, and sells consumer electronics, computer software, and online services. Its primary products include the iPhone, Mac, iPad, Apple Watch, AirPods, and various software and cloud services. Apple sells its products and services through direct channels (retail and online stores) as well as indirect channels (cellular network carriers, wholesalers, retailers, and resellers). The company operates in a highly competitive global market for consumer electronics and digital services.
    • Apple's revenue is primarily generated from the sale of its hardware products, with the iPhone accounting for the largest portion of its revenue. However, the company is increasingly focusing on its services segment, which includes subscriptions to Apple Music, Apple TV+, iCloud, and other services.
    • Apple's target market is primarily consumers, with a focus on affluent and tech-savvy individuals. The company also targets businesses, offering products and services that can enhance productivity and collaboration.
    • For comparative analysis, we will be using the Technology Select Sector SPDR Fund (XLK) as a benchmark and Alphabet, Inc. (GOOGL) and Meta Platforms, Inc. (META) as industry peers.

  2. Financial Performance:

    • Apple's revenue has been growing steadily over the past few years, but growth has slowed in recent quarters. This is likely due to a combination of factors, including market saturation, macroeconomic headwinds, and weaker foreign currencies.
    • Apple's profitability has also been declining in recent quarters, as evidenced by the decreasing net income and net margin. This is primarily due to rising operating expenses, which are driven by investments in research and development, marketing, and other areas.
    • Apple's gross margin remains strong, indicating its ability to manage costs effectively. The company's strong ability to generate profit relative to its assets, equity, and invested capital is a positive sign.
    • Compared to its peers, Apple's financial performance has been mixed. While it has generally outperformed GOOGL, it has significantly underperformed META. This suggests that Apple may be a more stable investment than META, but it may not offer the same potential for high returns.

  3. Operational Efficiency:

    • Apple's asset utilization efficiency has been improving in recent quarters, as indicated by the decreasing accounts receivable, inventories, and other current assets. This suggests that the company is becoming more efficient in managing its working capital.
    • Apple's capital expenditure efficiency is high, as evidenced by the consistent generation of revenue and profit growth relative to past investments. This indicates that the company is effectively allocating its capital to generate returns.
    • Apple's free cash flow is expected to continue to grow, providing ample resources for debt repayment, dividend growth, and investment in organic growth opportunities. This suggests that the company has a strong financial foundation for future growth.
    • Apple's dividend and share repurchase program is sustainable, as evidenced by the company's strong cash flow generation and low debt levels. This suggests that the company is committed to returning value to shareholders.
    • Compared to its peers, Apple's operational efficiency is generally strong. However, its current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.

  4. Growth Opportunities:

    • Apple has a number of growth opportunities, including market expansion, M&A, R&D, geographic expansion, and strategic initiatives.
    • Apple is expanding its market reach by introducing new products and services, such as the Apple Vision Pro headset and Apple Intelligence. The company is also expanding its geographic footprint, particularly in emerging markets.
    • Apple is investing heavily in research and development, with a focus on artificial intelligence, augmented reality, and other emerging technologies. This suggests that the company is committed to innovation and maintaining its competitive edge.
    • Apple is actively pursuing M&A opportunities, with a focus on acquiring companies that can enhance its product portfolio or expand its market reach.
    • Apple's strategic initiatives, such as the development of "Apple Intelligence," are expected to drive future cash flow growth. This suggests that the company is well-positioned to capitalize on emerging trends and maintain its leadership position in the technology industry.

  5. Risks and Threats:

    • Apple faces a number of risks and threats, including intense competition, reliance on outsourced manufacturing, macroeconomic headwinds, regulatory scrutiny, cybersecurity threats, and data privacy concerns.
    • Apple's reliance on outsourced manufacturing and complex global supply chain leaves it vulnerable to disruptions that could disrupt product availability and sales.
    • Apple is facing intense competition and regulatory scrutiny in its core markets, which could impact its ability to maintain its market position and profitability.
    • Apple's revenue growth is slowing down, potentially due to market saturation or macroeconomic headwinds.
    • Apple's current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.

  6. Valuation Analysis:

    • Apple's valuation is currently high, as evidenced by its P/E ratio and EV/EBITDA ratio. This is likely due to the company's strong brand, loyal customer base, and growth potential.
    • Compared to its peers, Apple's valuation is generally in line with or slightly higher than GOOGL, but significantly higher than META. This suggests that investors are willing to pay a premium for Apple's stability and growth potential.
    • Potential catalysts for Apple's valuation include the continued growth of its services segment, the successful launch of new products, and the expansion of its geographic footprint.

  7. Price Performance:

    • Apple's stock price has been volatile in recent months, but it has generally outperformed the broader technology sector over the past three years.
    • Apple's price performance has been more consistent than META's, but less consistent than GOOGL's. This suggests that Apple may be a good choice for investors seeking a more predictable investment, but it may not be the best choice for investors seeking high growth.
    • Apple's beta value has generally been above 1, indicating that it is more volatile than the overall market. However, Apple's beta has been lower than META's, suggesting that Apple is less sensitive to market movements than META.

  8. Future Outlook:

    • Apple's future outlook is generally positive, as evidenced by the company's strong financial position, growth opportunities, and commitment to innovation.
    • Apple's free cash flow is expected to continue to grow, providing ample resources for debt repayment, dividend growth, and investment in organic growth opportunities.
    • Apple's strategic initiatives, such as the development of "Apple Intelligence," are expected to drive future cash flow growth.
    • Analyst estimates for Apple's future performance are generally positive, with a consensus expectation for continued growth in revenue, earnings, and free cash flow.

  9. Summary:

    • Apple is a financially strong company with a solid track record of innovation and growth. However, the company faces challenges in maintaining its revenue growth and managing rising operating expenses.
    • Apple's strong liquidity position, healthy short-term financial health, and strong long-term solvency and financial stability are positive developments.
    • The company's strong ability to generate profit relative to its assets, equity, and invested capital is a positive sign.
    • Apple's current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.
    • The company's reliance on outsourced manufacturing and complex global supply chain leaves it vulnerable to disruptions that could disrupt product availability and sales.
    • Apple is facing intense competition and regulatory scrutiny in its core markets, which could impact its ability to maintain its market position and profitability.
    • Overall, Apple remains a financially strong company with a solid track record of innovation and growth. However, the company faces challenges in maintaining its revenue growth and managing rising operating expenses.
Peer fundamentals 
Fundamentals
Insights
  • Apple's revenue growth is decelerating, potentially due to market saturation or macroeconomic headwinds.
  • The company is facing pressure on its operating margins due to rising operating expenses.
  • Despite the decline in profitability, Apple is still maintaining a strong gross margin, indicating its ability to manage costs effectively.
  • Apple's liquidity position is strong, as evidenced by the increasing cash and short-term investments.
  • The company's short-term financial health is healthy, as indicated by the decreasing short-term debt and total current liabilities.
  • Apple's long-term solvency and financial stability are strong, as indicated by the decreasing long-term debt and increasing total shareholders' equity.
  • Apple's cash flows are generally increasing, driven by its stable business model and efficient operations.
  • The company's free cash flow is expected to continue to grow, providing ample resources for debt repayment, dividend growth, and investment in organic growth opportunities.
  • The company's announced strategic initiatives, such as the development of "Apple Intelligence," are expected to drive future cash flow growth.
  • Apple's strong ability to generate profit relative to its assets, equity, and invested capital is a positive sign.
  • Apple's current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.
  • The company's reliance on outsourced manufacturing and complex global supply chain leaves it vulnerable to disruptions that could disrupt product availability and sales.
  • Apple is facing intense competition and regulatory scrutiny in its core markets, which could impact its ability to maintain its market position and profitability.
  • Overall, Apple remains a financially strong company with a solid track record of innovation and growth. However, the company faces challenges in maintaining its revenue growth and managing rising operating expenses.
Analysis
  • Revenue - Apple's revenue growth is decelerating, potentially due to market saturation or macroeconomic headwinds. - The company's revenue decline is partly attributed to weaker foreign currencies. - Management has highlighted the strong performance of the installed base and record levels across all products and geographic segments, suggesting a potential shift towards services revenue growth. - Services revenue is expected to grow double digits, indicating a potential shift towards a more services-oriented business model.
    • Profitability
      • Apple's profitability is declining, as evidenced by the decreasing net income and net margin.
      • The company is facing pressure on its operating margins due to rising operating expenses.
      • Despite the decline in profitability, Apple is still maintaining a strong gross margin, indicating its ability to manage costs effectively.
      • Apple's strong ability to generate profit relative to its assets, equity, and invested capital is a positive sign.
    • Liquidity
      • Apple's liquidity position is strong, as evidenced by the increasing cash and short-term investments.
      • The company's short-term financial health is healthy, as indicated by the decreasing short-term debt and total current liabilities.
      • Apple's current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.
    • Solvency
      • Apple's long-term solvency and financial stability are strong, as indicated by the decreasing long-term debt and increasing total shareholders' equity.
      • The company's total debt to total equity ratio and debt/EBITDA are below the industry average, indicating a relatively conservative capital structure and a strong ability to manage debt.
    • Operational Efficiency
      • Apple's asset utilization efficiency is improving, as indicated by the decreasing accounts receivable, inventories, and other current assets.
      • The company's capital expenditure efficiency is high, as evidenced by the consistent generation of revenue and profit growth relative to past investments.
    • Cash Flow Analysis
      • Apple's cash flows are generally increasing, driven by its stable business model and efficient operations.
      • The company's free cash flow is expected to continue to grow, providing ample resources for debt repayment, dividend growth, and investment in organic growth opportunities.
      • The company's announced strategic initiatives, such as the development of "Apple Intelligence," are expected to drive future cash flow growth.
    • Risk Factors
      • Apple's revenue growth is slowing down, potentially due to market saturation or macroeconomic headwinds.
      • The company is facing pressure on its operating margins due to rising operating expenses.
      • Apple's current ratio and quick ratio are below the industry average, indicating a potential concern about its ability to meet its short-term obligations.
      • The company's reliance on outsourced manufacturing and complex global supply chain leaves it vulnerable to disruptions that could disrupt product availability and sales.
      • Apple is facing intense competition and regulatory scrutiny in its core markets, which could impact its ability to maintain its market position and profitability.
    • Future Outlook
      • Apple's financial flexibility is expected to remain strong, allowing it to pursue future growth opportunities.
      • The company's free cash flow is expected to continue to grow, providing ample resources for debt repayment, dividend growth, and investment in organic growth opportunities.
      • The company's announced strategic initiatives, such as the development of "Apple Intelligence," are expected to drive future cash flow growth.
      • Apple's strong liquidity position, healthy short-term financial health, and strong long-term solvency and financial stability are positive developments.
      • The company's strong ability to generate profit relative to its assets, equity, and invested capital is a positive sign.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-10-14)
Technology Select Sector SPDR Fund (XLK)
  • Performance Comparison: AAPL has exhibited a mixed performance history compared to XLK. While it outperformed XLK over the 6-month and 3-year periods, it underperformed over the 1-year, 2-year, and most recent periods. This suggests that AAPL's performance is not consistently superior to the broader technology sector.
  • Risk and Return Analysis: AAPL's annualized returns have been lower than XLK's over the 1-year and 2-year periods, but higher over the 3-year period. This indicates that AAPL's returns are not consistently higher than the broader technology sector. AAPL's annualized volatility has generally been lower than XLK's, suggesting that AAPL is less volatile than the broader technology sector. However, AAPL's maximum drawdown of 30.91% in Q1 2023 was slightly lower than XLK's maximum drawdown of 33.56% in Q3 2022. This suggests that AAPL's risk profile is not significantly different from the broader technology sector.
  • Risk-Adjusted Performance: XLK generally has a higher Sharpe ratio than AAPL, indicating that XLK offers better risk-adjusted returns over the period. However, in Q4 2023 and Q1 2024, AAPL's Sharpe ratio was higher than XLK's Sharpe ratio, suggesting that AAPL offered better risk-adjusted returns during those periods. AAPL's beta values suggest that it is a relatively high-risk stock, as it is more volatile than the overall market.
  • Overall Assessment: AAPL's performance has been mixed compared to XLK, with periods of both outperformance and underperformance. AAPL's annualized returns have been lower than XLK's over the 1-year and 2-year periods, but higher over the 3-year period. AAPL's annualized volatility has generally been lower than XLK's, suggesting that AAPL is less volatile than the broader technology sector. However, AAPL's maximum drawdown of 30.91% in Q1 2023 was slightly lower than XLK's maximum drawdown of 33.56% in Q3 2022. XLK generally has a higher Sharpe ratio than AAPL, indicating that XLK offers better risk-adjusted returns over the period. However, in Q4 2023 and Q1 2024, AAPL's Sharpe ratio was higher than XLK's Sharpe ratio, suggesting that AAPL offered better risk-adjusted returns during those periods. AAPL's beta values suggest that it is a relatively high-risk stock, as it is more volatile than the overall market. Overall, AAPL's performance has been mixed compared to XLK, with periods of both outperformance and underperformance. AAPL's risk profile is not significantly different from the broader technology sector. Investors should carefully consider AAPL's risk and return characteristics before making any investment decisions.
Peers Price History(as of 2024-10-14)
Meta Platforms, Inc. (META)Alphabet, Inc. (GOOGL)
  • Performance Comparison:
    • AAPL has generally outperformed GOOGL over the past three years, particularly in the longer timeframes (6 months, 1 year, and 3 years). However, AAPL has significantly underperformed META, especially in the longer timeframes. This suggests that AAPL may be a more stable investment than META, but it may not offer the same potential for high returns.
    • AAPL's performance has been more consistent than META's, but less consistent than GOOGL's. This suggests that AAPL may be a good choice for investors seeking a more predictable investment, but it may not be the best choice for investors seeking high growth.
  • Risk and Return Analysis:
    • AAPL has generally provided lower annualized returns than META, but higher returns than GOOGL. This suggests that AAPL may be a good choice for investors seeking a balance between risk and return.
    • AAPL has generally exhibited lower annualized volatility than META, but higher volatility than GOOGL. This suggests that AAPL may be a good choice for investors seeking a more stable investment, but it may not offer the same potential for high returns.
    • AAPL has experienced a smaller maximum drawdown than META, but a larger drawdown than GOOGL. This suggests that AAPL may be a good choice for investors seeking a more stable investment, but it may not offer the same potential for high returns.
  • Risk-Adjusted Performance:
    • AAPL has generally had a lower Sharpe ratio than GOOGL, but higher than META. This suggests that GOOGL has offered a better risk-adjusted return over the period, while META has offered a lower risk-adjusted return.
    • AAPL's beta value has generally been above 1, indicating that it is more volatile than the overall market. However, AAPL's beta has been lower than META's, suggesting that AAPL is less sensitive to market movements than META.
  • Overall Assessment:
    • AAPL has generally outperformed GOOGL in terms of performance and risk-adjusted returns, but it has significantly underperformed META. This suggests that AAPL may be a good choice for investors seeking a more stable investment with a balance between risk and return. However, investors seeking high growth potential may prefer META, despite its higher risk profile.
    • The recent trends in volatility, drawdowns, and Sharpe ratios suggest that the market may be entering a period of greater stability. This could benefit AAPL, as it has generally exhibited lower volatility than META.
    • Investors should carefully consider their risk tolerance and investment goals when making investment decisions.
Peers Fundamentals(as of 2024-06-30)
Meta Platforms, Inc. (META)Alphabet, Inc. (GOOGL)

  1. Market Position and Size:

    • AAPL is the largest company in its peer group, with a market cap significantly exceeding both GOOGL and META.
    • This size advantage is reflected in AAPL's higher revenue, EBITDA, and net income compared to its peers.
    • AAPL's market dominance suggests a strong brand reputation and a large customer base.

  2. Profitability and Efficiency:

    • AAPL's profitability metrics, including gross profit margin, EBITDA margin, and net profit margin, are lower than its peers but significantly higher than the industry average.
    • This suggests that AAPL's cost structure is less efficient than its peers, but it still maintains a strong profitability compared to the broader industry.
    • AAPL's high return on equity and return on assets indicate its efficiency in generating returns for shareholders and utilizing its assets effectively.

  3. Financial Health and Stability:

    • AAPL's liquidity, as measured by current ratio and quick ratio, is lower than its peers and the industry average, suggesting a lower level of short-term financial flexibility.
    • AAPL's debt levels are higher than its peers but lower than the industry average, indicating a more leveraged financial structure.
    • Overall, AAPL's financial health is strong, but its higher debt levels and lower liquidity compared to peers are potential risks to consider.

  4. Valuation and Market Perception:

    • AAPL is valued at a premium compared to its peers across most valuation metrics, but at a discount compared to the industry average for Enterprise Value To EBITDA and Price To Earnings.
    • This suggests that the market perceives AAPL as a high-quality company with strong growth potential, but it is also aware of the company's relatively high debt levels and less efficient cost structure.

  5. Cash Flow and Capital Management:

    • AAPL generates strong cash flow from its operations and free cash flow compared to its peers, despite its larger market cap.
    • This indicates that AAPL's business model is highly efficient and profitable, and it is able to generate significant cash flow for its shareholders.
    • AAPL's lower capital expenditure compared to its peers suggests a more mature business model or a focus on efficiency.

  6. Growth and Future Prospect:

    • AAPL's growth rates are consistently lower than the peer group average for most metrics, but its 5-year CAGR figures are consistently higher than its 3-year CAGR figures for most metrics, indicating a trend of accelerating growth over the longer term.
    • This suggests that AAPL's growth is accelerating, but it is still lagging behind its peers.
    • AAPL's growth is concentrated in specific areas, particularly in free cash flow and book value per share, suggesting that its growth is not evenly distributed across all areas of the business.

  7. Potential for Investment:

    • AAPL is a large-cap company with a strong brand reputation and a loyal customer base.
    • It generates significant cash flow and has a high return on equity, indicating its profitability and efficiency.
    • However, its growth rates are consistently lower than its peers, and its cost structure is less efficient. Additionally, AAPL has a higher level of debt compared to its peers.
    • Investors should consider these factors when evaluating AAPL's investment attractiveness.

  8. Key Risks and Considerations:

    • AAPL's slower growth compared to its peers could indicate a weakening competitive position.
    • Its less efficient cost structure and higher debt levels could impact profitability and financial stability in the future.
    • The market's high valuation of AAPL could be vulnerable to changes in investor sentiment or economic conditions.

  9. Overall Assessment:

    • AAPL is a financially strong company with a dominant market position and a strong brand reputation.
    • However, its growth rates are lagging behind its peers, and its cost structure is less efficient than its peers.
    • Investors should carefully consider these factors and the potential risks associated with AAPL's high valuation and leveraged financial structure before making any investment decisions.