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History has proven countless times that the hottest stock in the industry under-performs in the long run.Before I continue I want to make it clear that based on a fundamental analysis, Apple, Inc. looks outstanding. Heck, they even make a pretty good product. Apples compounded annual growth rate in revenues over the past 5 and 10 years has been around 35 percent. This is exceptional no matter how you look at it. How did this company manage to grow this much every year? The answer to this question is simple; by selling products, while very well made, that are extremely overpriced. I’m still surprised that it has gone on this long. Apple products are most certainly a fad, however, a fad that has lasted longer than most.How much can investors expect the company to grow in the future? The answer to this question is also very simple. You don't have to be a financial genius to realize that no company can grow 35 percent every year forever. Even 3 percent growth cannot be sustained forever. So how much growth can we expect? A lot less than 35 percent and possibly negative growth as people switch to the next hot product.Valuing this stock based on its past earnings could be very dangerous because future earnings and earnings growth will most certainly decline. In the long run I am positive that earnings growth will be negative. There will always be new companies emerging that make products better and cheaper. Honestly, I just don’t understand why people are willing to pay 2, 3 or even 4 times what something is worth just because it’s made by Apple. Again, as I mentioned before, Apple products are very well made. However, I know other things that are also well made and people are not paying outrages sums for it. I have also noticed over the last several years that the ingenuity that made this company what it is today has disappeared. The company no longer makes new innovative products. I mean just look at the iPhone, they keep coming out with a new one every year, however, if you think about it they are all pretty much the same. Eventually people will get bored of this same old thing and move on. Apple has had a great run, but now it’s time for this company to fall and another one to take its place.
False all around. Apple's premium is now 0-20% in the segments of smartphones (iPhone), ultrabook (MBA), and tablets (iPad). Many people are willing to pay another $100 vs the competition for the premium product, esp since the products are arguably better. I see Apple has 11% market share of laptops as of 2Q2011 http://techcrunch.com/2011/07/14/apple-continues-slow-but-steady-growth-in-us-laptop-market-share/and 27% market share of smartphones in the USA (82 million users as of July 2011). While clearly it can't keep accelerating earnings growth, I see no reason why it can't double earnings a couple times on the existing product lines. iPhone is also a great example of Apple locking in people into their ecocystem. I have been tempted to switch to Android but now that I just ponied up for iTunes Match, it's even more of a hurdle to switch (along with the apps/music I already bought from iTunes). Apple has tons of moats everywhere I can see. Their brand, their operations management (preventing rivals from buying necessary lathes for aluminum machining). software store and integration between product lines, etc
As the world economies become worse and worse people will not be willing to continue paying a huge premium for a slightly better product. And if you think that Apple will be able double its earnings a couple of times on its existing product lines then you got to be joking! Apple has already experience the majority of its growth. However, let’s say you're right and Apple is able to double its earnings. That means that it would deserve a market cap of around $1 trillion dollars! I just don't think that's possible to be achieved anytime soon by any company. In other words, if you rely on Apples past growth to predict the future you will be extremely disappointed my friend.The same thing happened to Microsoft in the late 90's and early 00's. People realized that the growth the company experienced in the past decade will not continue. That's when Microsoft's stock price dropped and it hasn't recovered to its previous high ever since. I guarantee you that the same thing will happen with Apple.
Slightly Better? They are streets ahead.Microsoft lost in the end because it relied on trapping people. It's products we're never 'better' slightly or otherwise.As long as Apple stays focused on building best in class they will continue to sell and people (tired of the legacy of slow, broken, cheap crap PC) will see the value to be had in paying a higher price upfront. Agreed the crazy growth has to slow, it's inevitable, there is only so much money to go around!Not all PC's are bad though, if you spend enough you can get a good one - about the same as you would pay for a mac and you are there.
While I agree with you that the huge growth rates can't last forever, I think you're forgetting some important factors. Apple's current P/E is 14, meaning the stock is fairly valued based on it's current income (not future growth). Apple has significant growth potential in many areas. While Apple TV hasn't revolutionized the industry, there is a consolidation happening in home entertainment that will eventually replace our cable companies as television content providers. Apple, Google, and Microsoft will be the beneficiaries of this change. Do you contend that Apple will not enter and compete in near field communication payment technology? I believe they will and they will take a bite out of the businesses of Mastercard, Visa, and American Express when they do.Finally, Apple does more than create and sell hardware at premium prices - they extract ongoing cashflows from all of the content that is being provided through that hardware. I think your red thumb on this stock is going to hurt your score.
I hate Apple just on general principal. I've used all of their products over the years, usually because I had too, or could do so without purchasing them. Apple has almost always (Lisa excepted) made superior tech but its draconian strangle hold on that tech and its software has always been my argument against Apple. All that being said, Apple is a monster of a company. Masterful management and innovation and above all else superior marketing have made Apple what it is today. Contrary to popular belief, Steve Jobs was not the only driving force behind Apples huge success. Apple still has momentum, and unless they start blowing their cash wad on silly things, Apple will more then likely win the war that is being waged right now between Apple, Google, and MS. With the current product line and logical succession of upgrades (iPhone 5, iPad 3 & 4, and at least one more iteration of the current Computer lines) Apple should be able to maintain its current upward trend and eventually settle in the mid $500s. After that, well I'm not really sure. The big 3 are still jockeying. Lots of Patent consolidation, and MS may or may not snag some mobile share. I think this summer we will begin to see the signs of any big plays to come.
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