How to Invest in Apple Stock? | Stock Investing Series

Apple is one of the most valuable and profitable companies in the world, with a market capitalization of over $3 trillion as of July 2023. The company is known for its innovative products and services, such as the iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, Apple Music, iCloud, and more. Apple has a loyal customer base and a strong brand image, which gives it a competitive edge in the global market.

But how does Apple perform financially? And is it a good time to invest in its stock? In this blog post, we will analyze some of the key financial indicators of Apple, such as its revenue, earnings, cash flow, margins, growth, valuation, and dividends. We will also look at some of the opportunities and challenges that Apple faces in the future, and how they might affect its stock price.

Revenue

Revenue is the amount of money that a company generates from selling its products and services. It is an important measure of a company's size, market share, and growth potential. Apple's revenue has been growing steadily over the years, reaching $365 billion in fiscal year 2022, which ended on September 25th. This was a 16% increase from the previous year, and a record high for the company.

Apple's revenue comes from five segments: iPhone, Mac, iPad, Wearables, Home and Accessories (WHA), and Services. The iPhone segment is the largest and most profitable one, accounting for 53% of the total revenue in fiscal year 2022. The iPhone segment grew by 19% year-over-year, driven by strong demand for the iPhone 13 series, which was launched in September 2021. The iPhone 13 series features a new design, improved cameras, faster performance, longer battery life, and 5G connectivity.

The Mac segment is the second-largest one, accounting for 14% of the total revenue in fiscal year 2022. The Mac segment grew by 12% year-over-year, driven by strong demand for the new MacBooks and iMacs powered by Apple's own M1 chip. The M1 chip is a breakthrough in chip design that delivers faster performance, longer battery life, and better compatibility with iOS apps.

The iPad segment is the third-largest one, accounting for 11% of the total revenue in fiscal year 2022. The iPad segment grew by 9% year-over-year, driven by strong demand for the new iPad Pro models that feature a mini-LED display and an M1 chip.

Apple's Services portfolio consists of various offerings that provide value to its customers and generate recurring revenues for the company. As of now, Apple has more than 975 million paid subscribers across its Services, which include iCloud, Apple Music, Apple TV+, Apple Arcade, Apple News+, Apple Fitness+, and Apple One. These services enhance the user experience of Apple's devices and create a loyal customer base. 

One of the key components of Apple's Services portfolio is the App Store, which is the gateway to millions of apps for iOS, iPadOS, macOS, watchOS, and tvOS users. The App Store attracts prominent developers from around the world who create innovative and engaging apps for various categories, such as games, education, health, entertainment, and productivity. The App Store also features AI-infused apps that leverage Apple's machine learning frameworks, such as Core ML and Create ML, to deliver personalized and intelligent features. These apps help Apple differentiate itself from its competitors and attract more subscribers to the App Store.

Another important service that Apple offers is Apple Pay, which is a secure and convenient way to make payments using iPhone, iPad, Apple Watch, or Mac. Apple Pay is based on contactless payment (NFC) technology that enables users to pay with their devices without touching physical cards or cash. Apple Pay has expanded to several markets around the world and supports various use cases, such as public transport, entertainment venues, online shopping, and peer-to-peer transfers. Moreover, Apple Pay has benefited from the increased adoption of contactless payment due to the coronavirus pandemic, which has boosted its usage and popularity.

Apple is also investing in emerging technologies, such as autonomous vehicles and augmented reality/virtual reality (AR/VR), that have the potential to transform various industries and create new opportunities for growth. Apple has acquired several smaller firms with expertise in AR hardware, 3D gaming and VR software to bolster its capabilities in these domains. These include SensoMotoric, Flyby Media, Emotient, TupleJump, Turi, Metaio, PrimeSense and Lattice Data Inc. Additionally, Apple has developed ARKit, which is a platform that allows third-party developers to create AR experiences for iOS devices. Furthermore, Apple is rumored to be working on its own AR/VR devices that could leverage its ecosystem and offer immersive and interactive experiences to its users.

Apple is in a great financial position and makes a lot of money. At the end of March 2023, it had $166.33 billion in cash and other assets that can be easily sold, which is more than the $165.45 billion it had at the end of December 2022. It also reduced its debt from $109.37 billion to $107.62 billion in the same period. Apple gave back more than $23 billion to its shareholders in the last quarter, by paying dividends ($3.7 billion) and buying back its own shares ($19.1 billion).

Apple's Services portfolio, App Store, Apple Pay, and AR/VR initiatives are some of the key drivers of its growth and innovation. These offerings provide value to its customers and differentiate it from its rivals. Apple is well-positioned to capitalize on these opportunities and maintain its leadership in the technology industry.

Intrinsic Value of Apple Stock:

If you're an investor looking for a great opportunity, you might want to consider Apple stock. Apple is one of the most innovative and profitable companies in the world, with a loyal customer base and a strong brand image. But how do you determine the intrinsic value of Apple stock, or the true worth of the company based on its fundamentals?

One way to estimate the intrinsic value of a stock is to use the discounted cash flow (DCF) method. This method involves projecting the future cash flows of the company and discounting them back to the present value using an appropriate discount rate. The discount rate reflects the risk and opportunity cost of investing in the stock. The higher the discount rate, the lower the intrinsic value.

To apply the DCF method to Apple, we need to make some assumptions about its future growth, margins, capital expenditures, and free cash flow. We also need to choose a discount rate that reflects the riskiness of Apple's business and the expected return of the market. 

Based on Guru Focus Intrinsic Value calculation, it is at the Fair Value of USD143.21 right now.

While the share price is trading at USD192.46 right now, it is currently overvalued.

Hence, it is not recommended to buy Apple stock right now.

Let's wait until it is undervalued.

We want to buy when it is having a good margin of safety, for example at 20%.

Risk of Investing in Apple Stock

Apple is one of the most valuable and profitable companies in the world, but investing in its stock is not without risk.

One of the main drivers of Apple's success is its ability to innovate and create products and services that customers love and are willing to pay a premium for. However, innovation is not easy to sustain, especially in a highly competitive and fast-changing market. Apple faces fierce competition from rivals such as Samsung, Huawei, Google, Microsoft, Amazon, and others, who are constantly launching new products and features that challenge Apple's dominance. Apple also has to deal with regulatory pressures, legal disputes, supply chain disruptions, and geopolitical tensions that could affect its operations and profitability.

Another factor that influences Apple's stock price is its valuation. Apple's market capitalization is currently over $3 trillion, making it the most valuable company in the world by a large margin. However, this also means that investors have high expectations for Apple's future growth and earnings, which could be hard to meet or exceed. Apple's stock trades at a price-to-earnings ratio of about 32, which is higher than the average of its peers and the S&P 500 index. This means that investors are paying a premium for Apple's stock relative to its current earnings, and are betting on its future potential. However, if Apple fails to deliver on its promises or faces any negative surprises, its stock price could drop significantly.

Therefore, investing in Apple stock now involves weighing the potential rewards against the possible risks. Investors should consider their own risk tolerance, time horizon, and investment goals before buying or selling Apple stock. They should also diversify their portfolio and not put all their eggs in one basket. Investing in any stock is risky, but investing in Apple stock now could be especially rewarding or disappointing depending on how the company performs in the future.

Happy Investing! 😉