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Monkeying Around with Apple Q1 2014



January 28, 2014 – Comments (5) | RELATED TICKERS: AAPL

Board: SAS: Apple

Author: SlothropsMonkey

[The following is from our Motley Fool Stock Advisor boards, a premium service. Click here to take a no-risk, free thirty-day trial of any of our services.]


We've all heard that a million monkeys banging on a million typewriters will eventually reproduce the entire works of Shakespeare. Now, thanks to the Internet and the pontification about Apple’s latest earnings update, we know this is not true.

Speaking of true things, Monkey is now going to process Apple’s latest update nice and mumble-like to himself for nobody’s edification nor pleasure but his own, just to see how high he’s swinging from the branches and how hard he’ll hit his head when he slips, flips and falls.

So step by step.

1. Turn off all human chatter. Y’all sound like a bunch o’ uncouth gorillas getting all up in a tizzy over some Google or Amazon or other stealing your coconuts while you were sleeping. Relax. It’s a big jungle. Plus, your thumping and harumphing hither and tither disturbs Monkey’s hammock time, so don’t even.

2. Take out the abacus on which to perform simple calculations.
Add $10.09 + 7.47 + 8.26 + this quarter’s $14.5 to get last year’s earnings of $40.32.

3. Ask “what does this mean given Apples’ most recent price (now After Hours at $506)?”

4. This means that Monkey is paying $506 dollars to own a business that last year paid him $40.32. Which means that for every 12.4 bananas Monkey invested, he gets an extra one "for free" to put into his tummy. Is this 12.4 ratio good? Hard tellin’ with nothing to compare it with. So look up the current S & P 500 P/E ratio and find that it is 18.88. That means that on average, you have to pay 18.88 bananas to eat an extra one. Which makes the price of one of Apple’s earning bananas approximately 34% cheaper than all the companies on the S& P on average. By this measure, Monkey feels like his investment in Apple’s bananas is wise.

5. Humbly recall there is also $157 per share in the piggy bank, effectively making Apple’s business in and of itself worth $380, which divided by last year’s $40.32 in earnings leads to a ratio of 9.42, or approximately 50% cheaper than the average of the S & P index.

6. Ask whether management is in danger of being hasty with this extra cash, and gently conclude that the answer is, ahem, cough couch, scratch scratch, BIG SNEEZE, ummm, no, not really “hasty.” No, Apple is in no danger of paying billions of dollars for a thermostat and smoke alarm.

6A. Cogitate on whether Apple is in great danger of costing shareholders bananas by not using that cash wisely enough through inaction. Realize, then, that with activist investors tweeting up a storm and writing letters and plain old Monkeying Around, and some professional accountant weenies on the staff that wield the abacus as skillfully (if not more so) than Monkey does, that Apple is in fact considering all sorts of options and that it’s better to patiently deliberate what to do with it with the long game plan in mind than to act like an irate chimpanzee and fart it all away. These, of course, are extremes, but odds are high, so Monkey supposes, that the people who run the financial knick-knacks of the company are not, in fact, idiots. If they are, Monkey has been utterly and grotesquely fooled, with a lower case f. Nay, make that a subscript f, indicating complete idiocy on Monkey’s part for thinking that the people closest and most in-tune with Apple’s business know how to handle the cash better than he does from his hammock in the tropics, and that they are, in fact, not diabolically set on destroying the company through obstinate inaction. Conversely, is it at all possible that Apple’s board is acting in the genuine best interest of the company and the long-term share-holders? Monkey thinks it is both entirely possible, and, likely. Apple is refusing to grow like cancer, gobbling up everything in its path simply because it can. That is the way of modern day banking and capitalism and suburban housing developments and political graft and too many things: grow grow grow and ask about the consequences and methodology later. But Apple, it seems like, is not careless about the source of its growth and consequently frugal with the bank. Too frugal, perhaps, maybe. But that is rectifiable. Google, on the other hand, is stuck with their thermostat. And, mind you, Monkey also owns Google and thinks that was an undisciplined use of cash.

7. Wonder whether now would be a good time to continue “artificially engineering” further Earnings Per Share growth through share buybacks. Conclude that we’re all friends here and there’s no reason for name-calling and taunting. Share buybacks increase shareholder value no matter what you humans call it, and with more money in the bank and a steep share price drop tomorrow, now would in fact be a good time. Which plan, as far as Monkey can tell, Apple has in fact been enacting for a while now, so nothing to see here, folks.

8. Consider the strength of the business: is Apple a rotten banana, in other words. Well, from a quick look-see, Monkey found that Apple sold 51 million iPhones, an all-time quarterly record, compared to 47.8 million in the year-ago quarter. Apple also sold 26 million iPads during the quarter, also an all-time quarterly record, compared to 22.9 million in the year-ago quarter. The Company sold 4.8 million Macs, compared to 4.1 million in the year-ago quarter.

9. Visualize these numbers. Actually try to visualize what 51 million pocket-size space-age gizmos would look like in a room. Imagine opening a gizmo stand and in three month’s time selling 51 MILLION OF THEM. Of just one kind. Never mind the 26 million of the other flat and touchy-feely kind and plus 4.8 million big gizmos of yet another kind that people also still like, called computers.

10. Recall that the price of each of these is a teeny-tiny more than a frozen banana.

11. Say to yourself “seems like this business is selling a lot of gizmos at high prices.” Declare as fact that bipeds seem to like them. This company even has a built-in ecosystem-sticky-thingamajiger that makes people who buy one of these gizmos constantly lose their hair over when the next version will come out and what colors it will be sold in and how much bigger the screen will be and whether or not it will iron your trousers and perform a belly-dance. Assume, therefore, that, along with the 500+ million credit cards Apple has on file, the company will have a few repeat customers.

12. But what about the future? The stock market is nothing but an expectations machine, clouding our judgment of the present for a chance to admire this amorphous future (that never arrives, because, Monkey supposes, by definition, it never can). Rephrase that to mean the road to hell is paved with expectations and choose to be satisfied, first and foremost with the company’s current health before pooping one’s pants about this never existing future. Order of operations, friends.

13. Assume that with the new China Mobile deal and a new potential market of 700 MILLION gadget hungry humanoids, Apple will, however, sell a few more pieces of fruit in this non-existing time-space future blob. Plus, also, India. Plus other emerging markets.

14. Get sidetracked and recall that some folks think Apple is doomed because Cook said Apple had “a very good quarter” instead of “positively thrilled with our results.” Those who frolic in these dark arts of word contortion are sophists who attempt to make the lesser appear the greater. They are to be avoided. If you're a shareholder of Apple Inc., do you believe that the leaders at Apple are sophists? If so, sell.

15. But if the future must be taken in to consideration for growth reasons, recall, too, that Tim Cook is as public a figure as the president––or more so, in investing circles––and that he’s been tight-lipped about all things behind Apple’s curtain of development, but has, several times now, said that we’d be amazed to see what Apple is working on. Consider if he would have made that kind of statement if in fact there were only sad lonely crickets in Apple’s secret chambers of innovation. Conclude, using basic reasoning skillz, that the probability of Apple not having new gizmos is much less likely than the happy opposite.

15A. Remain calm and be glad that revolutionary things don’t change the world more frequently than every 3 to 5 to 7 years, or else we’d all turn into robotic ding-dongs sooner than later. Humans are, in case you forgot, the only creatures who think it’s a good idea to make weapons that will blow the planet up. And have, in fact, pointed these weapons at each other, most likely because the size of their leader’s genitalia was questioned by the other offending leader’s genitalia. Mourn and cry at the realization that your resident Monkey is not making this up.

16. Deliberate whether patience is, in fact something you have, except, of course, when you don’t have it.

17. As the stock plunges further and further into the red today, ask yourself whether a few years down the road when you walk by one of Apple’s stores you’re not going to regret thinking to yourself “No need to go in. I sold all my shares on January 27th, 2014. They couldn’t possibly have done anything exciting since then.” If you can say that wholeheartedly, then sell your shares. And if you can’t, hold on to them and sleep peacefully.

18. Use your own superior big brains––just like you did when you sold NFLX down to $53––and recall that Monkey is just a proverbial swinger of birches.

Humbly Yours,

5 Comments – Post Your Own

#1) On January 28, 2014 at 11:58 AM, Mathman6577 (< 20) wrote:

I also like all of the little pieces of fruit that come out every 3 months that line my bank account.

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#2) On January 28, 2014 at 5:29 PM, constructive (99.97) wrote:

5. Humbly recall there is also $157 per share in the piggy bank

I told you, there's always money in the banana stand!

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#3) On January 29, 2014 at 8:29 AM, Option1307 (30.45) wrote:

Amazing post!

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#4) On January 29, 2014 at 9:23 AM, Logger59 (< 20) wrote:

Very fun and insightful! I too have sayings, "you only have one trip through the Carnival, you'd better enjoy the ride you're on" It is possible to not always make the best decisions but instead gamble, back the perceptual underdog, live in the fast lane, etc!

I personally, despite being relatively unsophisticated, choose to stick with my 85 shares and hope to spend them in my retirement!


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#5) On January 29, 2014 at 10:42 AM, ikkyu2 (98.57) wrote:

Lotta typing.  You forgot the dividend.

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