Introduction
Apple Inc, founded by Steve Jobs, Steve Wozniak and Ronald Wayne in 1976. The first product that was released in to the market was the Apple-1, a computer which was a revolution in the world due to its video display terminal and keyboard. After decades of technological innovation and advancements, Apple grew to one the biggest and greatest companies in the world. They are market leaders in the technology industry and are especially known for the most popular products that include the iPhone, MacBook, iPad, Apple watch and so forth. To put their size into perspective, there are an estimated 1.46 billion active iPhones in the world right now and iPhone also has an 58% market share in the US. Apple further provides their own unique services like Apple Music, iCloud and the App store.
Apple, that started as a garage setup, currently is a global powerhouse with a market capitalization of $3.2 trillion. Being one of the biggest companies in the world also comes with a lot of responsibilities. Namely, Apple has to continue innovating in order to maintain or even expand their market share, implement in improve their ESG rating, take into consideration many regulations such as privacy and much more. Taken all of this into consideration, we ask ourselves the following question: “What is the fair value and growth potential of Apple?”
In this stock analysis, Apple is examined in order to determine the financial health of the company, its growth potential and what could happen to the stock price in the future. The article is further divided in the following sections: an industry overview, a competitive analysis, a financial statement analysis, key ratios, Apple’s valuation and finally a conclusion.
Industry overview
The technology sector is a highly competitive and rapidly evolving market. That is why each company has to keep innovating and follow the latest market trends in order to stay ahead of the curve and don’t lose market share to its competitors. Because there are a lot of opportunities and growth potential in this market, there are many players, both large and small caps. One characteristic of this industry is that the majority of the companies are financed with equity, therefore shareholders expect larger return in the process. Another trait of tech companies is that they often do not pay out a lot of dividends because these companies rather use their retained earnings to invest in research & development and expand their businesses
The sector further consists of various segments such as smartphones, computers, hardware, software semiconductors etc. With the growing demand towards technology, new innovation arise. Think about the latest trend in 5G, implementing artificial intelligence as well as Internet of Things. Apple is invested in various segments such as phones, computers and wearables with phones being their main revenue driver.
Competitive analysis
Since Apple is a market leader and operates in various segments, they have to compete with other major firms such as Samsung, Microsoft, Nvidia and Google where each company brings their own unique strength to the market.
Samsung offers a variety of electronics goods from smartphones to semiconductors. It further is one of the largest manufacturers of phones and televisions in the world. Next, Microsoft is a major software enterprise that operates in business processes (Microsoft Office), intelligence cloud (Window Server OS) and personal computing products (Windows client). Noteworthy is that Microsoft is the main partner of OpenAI which is the leader in generative AI at the moment. Nvidia, currently is the global market leader in the semiconductor industry with their main operations focused on artificial intelligence GPUs, The stock has seen immense growth in the last few years causing them to be in the top 3 of largest companies in the world. Finally, Google is a big competitors from Apple with their Android operating system which dominates the global smartphone OS.
So what makes Apple stand out from its competitors. First of all, Apple, is a globally recognized brand with a very strong reputation. They further have a loyal customer base that keeps buying the newest products. Customers are very satisfied with respect to the compatibility between Apple products and their easy to use system. This is very beneficial because this means that apple customers are likely to buy multiple products from different segments. Finally Apple has an abundance in cash which can be used to invest in research & development and promote innovation.
While Apple is strongly positioned in the market, they also have flaws in their business model. Namely, the products that they sell are all very expensive which can affect the demand towards their products. This is also a barrier to entry for potential new customers. Furthermore, Apple’s main revenue driver is the iPhone. While this does not seem like a problem at first sight, if the demand towards iPhones drops in the future, they lose a lot of revenue. However, this risk is rather small.
Looking at the opportunities in the market, there is a lot of growth potential in emerging markets. Another big opportunity is their expansion is services, Apple is making sure to improve and create new services which give them steady cashflows thanks to the subscriptions that are being paid. Some popular services include Apple pay, Apple music, iCloud etc. Other technologies such as AR/VR are going to be the next big trends where Apple has to adapt on.
With respect to threats in the market, competition is fierce with the majority of phones operating on an android system. Furthermore, regulations are getting more strict regarding privacy. Companies such as Apple have an immense amount of data from their users which cannot be leaked or sold to other parties.
Financial statement analysis
Now that we have a better understanding of Apples business model, the industry and their strengths and weaknesses, the next step is to determine whether is financially healthy as well. In the next section a closer look is taken into the balance sheet, income statement and cashflow statement.
The balance sheet
Over the past 5 years, Apple’s total assets have remained relatively the same. The majority of the total assets consists of long term investments. With respect to the current assets, they decreased a little bit over time. This is caused by a small decrease in cash & cash equivalents and a decrease in account receivables. Indicating that there is more cash inflows and more people are paying off their credit accounts. With respect to total liabilities, there was a small increase in the last 5 years. While the total non-current liabilities increased slightly due to higher long term debt used for investments. Further, the current liabilities increased due to an increase in account payable. This was potentially caused during the covid pandemic, where Apple was allowed to extend their payments made to 3rd parties.
Taken all of this information into consideration, the balance sheet of Apple has not been growing significantly over the last 5 years. This could mean that Apple is experiencing some growth problems at the moment. However, they do remain on top when it comes with implementing the latest market trends such as AI. Therefore, the total assets and long term investments could increase in the future. Furthermore, Apple is doing a great job in maintaining a healthy balance sheet and keeping their liabilities under control.
Figure 1: balance sheet progression (In thousands $)
Income statement
Continuing with the income statement of Apple and its progression shown in figure 2. The total revenue has shown robust growth thanks to strong sales of the iPhone as well as wearables and services contributed to the revenue growth. Looking at the total cost of revenue, they increased at a slower rate in comparison to the revenue. This further implies that the gross profit margin and total gross profit improved over time. Indicating that Apple is properly managing their costs. Finally, when looking at the net income progression, while it remained around $55 billion in 2019 and 2020, in 2021 it jumped to almost $100 billion and remained at this level ever since. This reflects that Apple is efficient in turning their revenue growth into larger profits.
To conclude, Apple is showing healthy revenue growth while at the same time they are able to keep their costs low. Ultimately, reflecting Apple’s ability for proper cost management. They are further able to keep their gross margin stable between 38-45% and a net income margin between 20-26% in the last 5 years. Hence, Apple remain a very profitable firm.
Figure 2: Income statement progression (In thousands $)
**Cashflow statement **
Apple generated plenty of cash flow from their operating activities. Even during the Covid-19 pandemic, Apple was able to continue growing their cash flow and after 2021 they were able to maintain a cashflow of around $100 billion.
With respect to the cash flow from investing activities, they remained close to zero. When looking closer at the cash flow statement, every year Apple both purchases and sells plenty of investments, These investments include research and development and acquisitions. Hence, Apple is expanding their businesses in order to remain market leader.
Continuing with the financing activities, Apple is committed to return capital to shareholders through paying dividends and share repurchases. While the dividends payments are rather low with a dividend yield of only 0.48%, the majority of the cashflow of financing activities comes from the payments of common stock. The issuance and repayment of long term debt further contributes to the negative cash flow.
Hence, Figure 3 shows that Apple has been focusing on growing its operational efficiency, managing investments appropriately by buying and selling investments, as well as using cash flow for financing activities in order to satisfy shareholders.
Figure 3: Cash flow statement (In thousands $)
**Key ratios **
Now that all the financial statements have been analyzed there are some other key financial ratios that should be taken into consideration. First the current and quick ratio tell us something about the current assets relative to the current liabilities. The current ratio decreased over time and is currently close to 1. Implying that the current assets just cover the current liabilities. When looking at the quick ratio which excludes inventory we see that the ratio drops below 1. Indicating that Apple does not have enough liquid current assets to cover its current liabilities.
The total debt to equity ratio of Apple tends to stay around 1.5. Indicating that Apple likes to maintain a balanced approach to leveraging debt. Once the D/E ratio drops below 1.5, this could indicate that equity has risen more in comparison to debt or previous debt has been paid off. Therefore, Apple could take on more debt to invest in new projects and research. In combination with their strong balance sheet with respect to cash and cash equivalents, Apple can ensure that all long and short term debt payments can be met and there is little risk related to the debt they take on.
Finally, looking at the total asset turnover which measure the efficiency of Apple’s use of its assets to generate revenue. Ratio of above one indicates that the company effectively uses their assets. Over the past 5 years, Apple’s total asset turnover has improved significantly, from 0.75 in 2019 to 1.12 in 2024. This further implies that Apple is able to grow their revenue stream while keeping their total assets at the same level (as we have seen in figure 1). Hence, for every dollar of assets, Apple is able to generate $1.12 in net sales.
Figure 4: Key ratios of Apple
Apple’s valuation
Apple is one of the largest companies in the world and has proven its competitive place in the market. However, being such a big company can make it more difficult to continue expanding and increase your revenue and profits. As a result, Apple is continuously innovating with new products (Apple Vision Pro) as well as new services (Apple Music, Apple TV+) to improve and diversify their revenue streams
Currently, Apple is trading at a price of $210 per share. Morningstar’s fair value is at $170 while the average of other analysts is at $208. Recently, in the beginning of June 2024, Apple released their press conference where they unveiled their generative AI features for their next models. If customers want to utilize the new generative AI features, they need to own an iPhone 15 pro or better in order to make full use of the Apple intelligence. As a result, this should drive demand towards the new iPhones, iPads and more in the near future. Ultimately, growing their sales and increasing its profits. This argument is further in line with the reaction of the investors, after the press release of Apple and their announcement with respect to AI, the share price jumped from around $190 to $200.
Hence, Apple stays on top of the food chain by continuously improving their products and services while also integrating the latest trends and technologies into their products. With generative AI being one of the hottest trends at the moment, it comes as no surprise that Apple will implement these features into their phones, tablets and MacBook’s. Ultimately, meeting all customer expectations and improve the user experience for their customers. Making Apple a global brand with a strong reputation with an eye for innovation.
Conclusion
Apple Inc. has firmly established itself as a dominant force in the technology industry, driven by a legacy of innovation and a commitment to quality. From its humble beginnings in a garage, Apple has evolved into a global powerhouse with a market capitalization of $3.2 trillion, owing to its iconic product lineup and a suite of services. Despite challenges such as high product prices and heavy reliance on iPhone sales, Apple’s strategic diversification and substantial investments in emerging technologies like AR/VR and generative AI highlight its proactive approach to sustaining growth and innovation.
Financially, Apple demonstrates robust health with steady revenue growth, strong profit margins, and efficient cost management. The company’s solid balance sheet, effective liability management, and substantial cash flow from operations underscore its strength. Apple’s ability to integrate cutting-edge technologies into its product ecosystem ensures it remains at the forefront of technological advancement. As Apple navigates future opportunities and challenges, its commitment to innovation and operational efficiency will be crucial in maintaining its leadership position and delivering sustained shareholder value.
I/we have a position in an asset mentioned
Introduction
Apple Inc, founded by Steve Jobs, Steve Wozniak and Ronald Wayne in 1976. The first product that was released in to the market was the Apple-1, a computer which was a revolution in the world due to its video display terminal and keyboard. After decades of technological innovation and advancements, Apple grew to one the biggest and greatest companies in the world. They are market leaders in the technology industry and are especially known for the most popular products that include the iPhone, MacBook, iPad, Apple watch and so forth. To put their size into perspective, there are an estimated 1.46 billion active iPhones in the world right now and iPhone also has an 58% market share in the US. Apple further provides their own unique services like Apple Music, iCloud and the App store.
Apple, that started as a garage setup, currently is a global powerhouse with a market capitalization of $3.2 trillion. Being one of the biggest companies in the world also comes with a lot of responsibilities. Namely, Apple has to continue innovating in order to maintain or even expand their market share, implement in improve their ESG rating, take into consideration many regulations such as privacy and much more. Taken all of this into consideration, we ask ourselves the following question: “What is the fair value and growth potential of Apple?”
In this stock analysis, Apple is examined in order to determine the financial health of the company, its growth potential and what could happen to the stock price in the future. The article is further divided in the following sections: an industry overview, a competitive analysis, a financial statement analysis, key ratios, Apple’s valuation and finally a conclusion.
Industry overview
The technology sector is a highly competitive and rapidly evolving market. That is why each company has to keep innovating and follow the latest market trends in order to stay ahead of the curve and don’t lose market share to its competitors. Because there are a lot of opportunities and growth potential in this market, there are many players, both large and small caps. One characteristic of this industry is that the majority of the companies are financed with equity, therefore shareholders expect larger return in the process. Another trait of tech companies is that they often do not pay out a lot of dividends because these companies rather use their retained earnings to invest in research & development and expand their businesses
The sector further consists of various segments such as smartphones, computers, hardware, software semiconductors etc. With the growing demand towards technology, new innovation arise. Think about the latest trend in 5G, implementing artificial intelligence as well as Internet of Things. Apple is invested in various segments such as phones, computers and wearables with phones being their main revenue driver.
Competitive analysis
Since Apple is a market leader and operates in various segments, they have to compete with other major firms such as Samsung, Microsoft, Nvidia and Google where each company brings their own unique strength to the market.
Samsung offers a variety of electronics goods from smartphones to semiconductors. It further is one of the largest manufacturers of phones and televisions in the world. Next, Microsoft is a major software enterprise that operates in business processes (Microsoft Office), intelligence cloud (Window Server OS) and personal computing products (Windows client). Noteworthy is that Microsoft is the main partner of OpenAI which is the leader in generative AI at the moment. Nvidia, currently is the global market leader in the semiconductor industry with their main operations focused on artificial intelligence GPUs, The stock has seen immense growth in the last few years causing them to be in the top 3 of largest companies in the world. Finally, Google is a big competitors from Apple with their Android operating system which dominates the global smartphone OS.
So what makes Apple stand out from its competitors. First of all, Apple, is a globally recognized brand with a very strong reputation. They further have a loyal customer base that keeps buying the newest products. Customers are very satisfied with respect to the compatibility between Apple products and their easy to use system. This is very beneficial because this means that apple customers are likely to buy multiple products from different segments. Finally Apple has an abundance in cash which can be used to invest in research & development and promote innovation.
While Apple is strongly positioned in the market, they also have flaws in their business model. Namely, the products that they sell are all very expensive which can affect the demand towards their products. This is also a barrier to entry for potential new customers. Furthermore, Apple’s main revenue driver is the iPhone. While this does not seem like a problem at first sight, if the demand towards iPhones drops in the future, they lose a lot of revenue. However, this risk is rather small.
Looking at the opportunities in the market, there is a lot of growth potential in emerging markets. Another big opportunity is their expansion is services, Apple is making sure to improve and create new services which give them steady cashflows thanks to the subscriptions that are being paid. Some popular services include Apple pay, Apple music, iCloud etc. Other technologies such as AR/VR are going to be the next big trends where Apple has to adapt on.
With respect to threats in the market, competition is fierce with the majority of phones operating on an android system. Furthermore, regulations are getting more strict regarding privacy. Companies such as Apple have an immense amount of data from their users which cannot be leaked or sold to other parties.
Financial statement analysis
Now that we have a better understanding of Apples business model, the industry and their strengths and weaknesses, the next step is to determine whether is financially healthy as well. In the next section a closer look is taken into the balance sheet, income statement and cashflow statement.
The balance sheet
Over the past 5 years, Apple’s total assets have remained relatively the same. The majority of the total assets consists of long term investments. With respect to the current assets, they decreased a little bit over time. This is caused by a small decrease in cash & cash equivalents and a decrease in account receivables. Indicating that there is more cash inflows and more people are paying off their credit accounts. With respect to total liabilities, there was a small increase in the last 5 years. While the total non-current liabilities increased slightly due to higher long term debt used for investments. Further, the current liabilities increased due to an increase in account payable. This was potentially caused during the covid pandemic, where Apple was allowed to extend their payments made to 3rd parties.
Taken all of this information into consideration, the balance sheet of Apple has not been growing significantly over the last 5 years. This could mean that Apple is experiencing some growth problems at the moment. However, they do remain on top when it comes with implementing the latest market trends such as AI. Therefore, the total assets and long term investments could increase in the future. Furthermore, Apple is doing a great job in maintaining a healthy balance sheet and keeping their liabilities under control.
Figure 1: balance sheet progression (In thousands $)
Income statement
Continuing with the income statement of Apple and its progression shown in figure 2. The total revenue has shown robust growth thanks to strong sales of the iPhone as well as wearables and services contributed to the revenue growth. Looking at the total cost of revenue, they increased at a slower rate in comparison to the revenue. This further implies that the gross profit margin and total gross profit improved over time. Indicating that Apple is properly managing their costs. Finally, when looking at the net income progression, while it remained around $55 billion in 2019 and 2020, in 2021 it jumped to almost $100 billion and remained at this level ever since. This reflects that Apple is efficient in turning their revenue growth into larger profits.
To conclude, Apple is showing healthy revenue growth while at the same time they are able to keep their costs low. Ultimately, reflecting Apple’s ability for proper cost management. They are further able to keep their gross margin stable between 38-45% and a net income margin between 20-26% in the last 5 years. Hence, Apple remain a very profitable firm.
Figure 2: Income statement progression (In thousands $)
**Cashflow statement **
Apple generated plenty of cash flow from their operating activities. Even during the Covid-19 pandemic, Apple was able to continue growing their cash flow and after 2021 they were able to maintain a cashflow of around $100 billion.
With respect to the cash flow from investing activities, they remained close to zero. When looking closer at the cash flow statement, every year Apple both purchases and sells plenty of investments, These investments include research and development and acquisitions. Hence, Apple is expanding their businesses in order to remain market leader.
Continuing with the financing activities, Apple is committed to return capital to shareholders through paying dividends and share repurchases. While the dividends payments are rather low with a dividend yield of only 0.48%, the majority of the cashflow of financing activities comes from the payments of common stock. The issuance and repayment of long term debt further contributes to the negative cash flow.
Hence, Figure 3 shows that Apple has been focusing on growing its operational efficiency, managing investments appropriately by buying and selling investments, as well as using cash flow for financing activities in order to satisfy shareholders.
Figure 3: Cash flow statement (In thousands $)
**Key ratios **
Now that all the financial statements have been analyzed there are some other key financial ratios that should be taken into consideration. First the current and quick ratio tell us something about the current assets relative to the current liabilities. The current ratio decreased over time and is currently close to 1. Implying that the current assets just cover the current liabilities. When looking at the quick ratio which excludes inventory we see that the ratio drops below 1. Indicating that Apple does not have enough liquid current assets to cover its current liabilities.
The total debt to equity ratio of Apple tends to stay around 1.5. Indicating that Apple likes to maintain a balanced approach to leveraging debt. Once the D/E ratio drops below 1.5, this could indicate that equity has risen more in comparison to debt or previous debt has been paid off. Therefore, Apple could take on more debt to invest in new projects and research. In combination with their strong balance sheet with respect to cash and cash equivalents, Apple can ensure that all long and short term debt payments can be met and there is little risk related to the debt they take on.
Finally, looking at the total asset turnover which measure the efficiency of Apple’s use of its assets to generate revenue. Ratio of above one indicates that the company effectively uses their assets. Over the past 5 years, Apple’s total asset turnover has improved significantly, from 0.75 in 2019 to 1.12 in 2024. This further implies that Apple is able to grow their revenue stream while keeping their total assets at the same level (as we have seen in figure 1). Hence, for every dollar of assets, Apple is able to generate $1.12 in net sales.
Figure 4: Key ratios of Apple
Apple’s valuation
Apple is one of the largest companies in the world and has proven its competitive place in the market. However, being such a big company can make it more difficult to continue expanding and increase your revenue and profits. As a result, Apple is continuously innovating with new products (Apple Vision Pro) as well as new services (Apple Music, Apple TV+) to improve and diversify their revenue streams
Currently, Apple is trading at a price of $210 per share. Morningstar’s fair value is at $170 while the average of other analysts is at $208. Recently, in the beginning of June 2024, Apple released their press conference where they unveiled their generative AI features for their next models. If customers want to utilize the new generative AI features, they need to own an iPhone 15 pro or better in order to make full use of the Apple intelligence. As a result, this should drive demand towards the new iPhones, iPads and more in the near future. Ultimately, growing their sales and increasing its profits. This argument is further in line with the reaction of the investors, after the press release of Apple and their announcement with respect to AI, the share price jumped from around $190 to $200.
Hence, Apple stays on top of the food chain by continuously improving their products and services while also integrating the latest trends and technologies into their products. With generative AI being one of the hottest trends at the moment, it comes as no surprise that Apple will implement these features into their phones, tablets and MacBook’s. Ultimately, meeting all customer expectations and improve the user experience for their customers. Making Apple a global brand with a strong reputation with an eye for innovation.
Conclusion
Apple Inc. has firmly established itself as a dominant force in the technology industry, driven by a legacy of innovation and a commitment to quality. From its humble beginnings in a garage, Apple has evolved into a global powerhouse with a market capitalization of $3.2 trillion, owing to its iconic product lineup and a suite of services. Despite challenges such as high product prices and heavy reliance on iPhone sales, Apple’s strategic diversification and substantial investments in emerging technologies like AR/VR and generative AI highlight its proactive approach to sustaining growth and innovation.
Financially, Apple demonstrates robust health with steady revenue growth, strong profit margins, and efficient cost management. The company’s solid balance sheet, effective liability management, and substantial cash flow from operations underscore its strength. Apple’s ability to integrate cutting-edge technologies into its product ecosystem ensures it remains at the forefront of technological advancement. As Apple navigates future opportunities and challenges, its commitment to innovation and operational efficiency will be crucial in maintaining its leadership position and delivering sustained shareholder value.
I/we have a position in an asset mentioned