# where's Apple (AAPL) headed?



## jargey3000 (Jan 25, 2011)

probably like a lot of people, AAPL has been my best performer the last couple years.
Some think it may be stalled & could fall back to $100 - or below?
Would like to know how CMF Apple-holders feel about the stock these days.


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## MrBlackhill (Jun 10, 2020)

It depends what you believe 2020 did to the valuation multiples of AAPL. (And many other tech stocks)

I don't hold AAPL, but when I look at this stock, I see a loved brand with a fan-base, a huge presence in our daily life, but...

AAPL net income in 2016 was about $46G vs $57G in 2020, which is a total increase of about 24% (5.5% CAGR)
AAPL revenue in 2016 was about $215G vs $275G in 2020, which is a total increase of about 28% (6.4% CAGR)
AAPL share price in 2016 was about $30 vs $130 in 2020, which is a total increase of about 333% (44.25% CAGR)
To me, those numbers don't add up. But I'm a beginner and maybe there's more to AAPL than those numbers. But otherwise... I believe AAPL should be below $75.

But then, many other tech stocks should also be below their 2020 price... I'm saying this even though I really like tech stocks.


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## MrMatt (Dec 21, 2011)

I don't think they're quite at market saturation.
I think Apple will continue to grow revenue around 15% for products over the next few years, maybe 20-25% in services.
So that P/E of 30 isn't that crazy.

40% of their revenue is services, I think that should suggest how hard they'll fight the EPIC Fortnite lawsuit.

There are much more insane valuations (ie Roblox today, makes no sense to me)


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## MrBlackhill (Jun 10, 2020)

There are surely thousands of stocks with much more insane valuations, but if I stick to giving my opinion about AAPL itself, I don't understand why a stock growing its business at a rate of 5% to 6% a year can justify a valuation growing at a rate of more than 40% a year.

In the past few years, out of the FAAMG stocks, AAPL has been growing its business the slowest, yet it had the greatest valuation growth.

It's hard to be on the bearish side of AAPL, certainly with Buffett having 43% weight in AAPL (but actively selling this money machine) and everybody loving the stock & brand, but I personally don't get it. Out of the FAAMG stocks, my most bullish sentiment is on FB and my most bearish sentiment is on AAPL.


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## jargey3000 (Jan 25, 2011)

what's the "M" stock?


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## MrBlackhill (Jun 10, 2020)

jargey3000 said:


> what's the "M" stock?


MSFT (instead of using the FAANG version with NFLX)


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## Covariance (Oct 20, 2020)

Over the above period Apple’s business changed from almost entirely hardware revenue to a large base of services revenue. The services revenue is recurring and therefore comparatively worth more in present value terms. In addition, the hardware business faces less competitive threat today due to the consolidation of smartphone market. Thus it is reasonable to value the same quantum of revenue today at a higher multiple.


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## MrBlackhill (Jun 10, 2020)

Covariance said:


> Over the above period Apple’s business changed from almost entirely hardware revenue to a large base of services revenue. The services revenue is recurring and therefore comparatively worth more in present value terms. In addition, the hardware business faces less competitive threat today due to the consolidation of smartphone market. Thus it is reasonable to value the same quantum of revenue today at a higher multiple.


Good points, but the multiples soared in 2020 and I don't think that 2020 was the year where AAPL suddenly went from hardware to services, if I'm not mistaken.


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## Covariance (Oct 20, 2020)

Timing of price move is dependent upon when the market acknowledges the change, and also acknowledges it will continue into the future. In this case it wasn’t a binary event but rather demonstration over multiple quarters followed by acknowledgement over many quarter. Then a rush in 2020 when the whole WFH tech got re rated higher.


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## MrMatt (Dec 21, 2011)

MrBlackhill said:


> There are surely thousands of stocks with much more insane valuations, but if I stick to giving my opinion about AAPL itself, I don't understand why a stock growing its business at a rate of 5% to 6% a year can justify a valuation growing at a rate of more than 40% a year.


1. The discount rate has changed.
2. The business model of Apple has improved.
3. The stability of Apple has improved.


As for the timing of a change in stock price, the market can be very slow to react, and can also overreact. I think Apple is a bit richly valued, but they're also in a good market position.

Also think about all the new investors, you're sitting there with your iphone, listening on airpods, and you've got $500 in Robinhood, what are you going to invest in?


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## MrBlackhill (Jun 10, 2020)

MrMatt said:


> 1. The discount rate has changed.
> 2. The business model of Apple has improved.
> 3. The stability of Apple has improved.
> 
> ...


To me, they're the most richly valued stock out of the FAAMG.

The past 5 years were also great years for all of the FAAMG stocks.

They are certainly in a good market position, so are the FAAMG stocks, but the valuation of AAPL compared to other FAAMG stocks makes me believe that AAPL deserves to start lagging a bit for the next few years.


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## kcowan (Jul 1, 2010)

I am viewing this current cutback as another cycle like several,previous ones. I hold a bunch and it is all found money after I unloaded all my hoidings and repurchased half at 35% discount.

I agree that their fundamentals don't support the valuation but that is not unusual nor is it among the worst


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## MrMatt (Dec 21, 2011)

MrBlackhill said:


> To me, they're the most richly valued stock out of the FAAMG.
> 
> The past 5 years were also great years for all of the FAAMG stocks.
> 
> They are certainly in a good market position, so are the FAAMG stocks, but the valuation of AAPL compared to other FAAMG stocks makes me believe that AAPL deserves to start lagging a bit for the next few years.


M -> MSFT? I totally missed that, really wasn't paying attention.

I do think AAPL is richly valued, and I do think they should lag. However, for some reason I don't understand, they continuously perform better than I think they should.
Their products are pretty good, but they continously make design decisions that don't make sense, and don't match up with what people want. Why don't they have a convertible macbook? Chrome and Windows both have several convertibles. Why no touchscreen. 
I don't really understand Apple fans, but they buy, and the company keeps them happy.


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## dotnet_nerd (Jul 1, 2009)

I'm bearish on MSFT.

As my name suggests, I had my whole career invested in their development products. Since BASIC in the early 90's, through all version of VB and finally .NET. But I'm semi-retired now, having made my million from consulting. So... I'm not really concerned. I still dabble with Xamarin for iOS/Android apps - mostly as a hobby and some opensource fun projects.

But... Microsoft is being left in the dust. Flutter 2 was announced a few days ago which blows Xamarin out of the water. If you look on Upwork for example, Flutter jobs outnumber Xamarin jobs 6:1 (these are cross-platform frameworks that let you write code once, and deploy to iOS/Android/Windows/Linux and Mac)

Everything is hinging on the new .NET 6 and MAUI. But IMO it's too little/too late. 
Non-MSFT languages are taking over. Eg. Flutter, Python and Node.js

What MSFT has going for them is Azure cloud services. We'll see....


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## MrBlackhill (Jun 10, 2020)

MrMatt said:


> M -> MSFT? I totally missed that, really wasn't paying attention.


_(Yeah, as much as I personally like NFLX, I prefer using FAAMG (also called GAFAM) instead of FAANG because the US Big 5 Tech (or also referred as S&P 5) are AAPL, MSFT, AMZN, GOOG and FB)

Maybe we should call them the T-cap stocks (trillion-dollar market cap), which would exclude FB though. I don't have enough influence to start a new trend, ha!_


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## MrMatt (Dec 21, 2011)

dotnet_nerd said:


> I'm bearish on MSFT.
> 
> 
> Everything is hinging on the new .NET 6 and MAUI. But IMO it's too little/too late.
> ...


I am not sure everything is hinging on .NET.
I think they've integrated the "developers first" mindset.
WSL, Github, good treatment of non-MS tech on Azure








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I thought MSFT would stick to customer lock in as their competitive advantage, but it seem they're shifting towards providing a good experience, which is good.


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## MrBlackhill (Jun 10, 2020)

MSFT has been part of the top 5 biggest market cap stocks for the past 25 years. I don't know which stock did better than that throughout history, but I don't know what kind of huge cataclysm would be required to see it drop below top 5. So many big companies are all Microsoft.


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