I find it helpful to occasionally monitor the guru holdings to observe any consensus picks within their portfolios. I strongly believe that it can be helpful in understanding the process of finding valuable potential investments. I don’t believe it should be used blindly as you own personal buylist. As many of these gurus had stated, one must do your own research and due diligence.
With this in mind, today I would like to review one such consensus holding with Apple. Apple is perhaps one of the best known American brand names on the planet. One would have to be in a coma for the past decade to not be familiar with and probably own one of the following; IPOD, IMac, IPAD, or IPhone. Their products have tremendous consumer appeal and are easy to use and cutting edge. I personally remember thinking about the company in 2002 and 2003. There was not a great deal to like about the company at that time.
Ok, so we can agree that it’s an innovative and highly profitable company with a bright future. However, I don’t usually associate the company with value investors. I realize that value is definitely a subjective concept. I also think (and have written about) that value investing doesn’t have to mean finding dirt cheap stocks.
Here are the financials for the past ten years;
There are different valuation metrics that we can use to measure the company’s current price. While price/earnings ratios tend to be the most popular, I don’t use it very often. I tend to focus on price to sales, price to free cash, and EBIT yield. On all of these metrics, it appears to be fully to overvalued. But we know that value investing is more than just static metrics and ratios. How do we value growth of a profitable franchise? Some in the value community would argue that value investing means a no growth assumption. This is a mistake in my opinion. We always want to own an investment that we be larger ten years from now than it is today. On this front AAPL passes with flying colors. However, we must be careful in what type of growth assumption we use in our valuation. I usually use no more than three times GDP annual growth. Certainly companies can grow faster, but this is the exception rather than the rule. The market is currently placing a premium on the shares in terms of expected growth. Therefore, while it may have been cheap back in 2003, today it is no bargain.
Disclosure: none
With this in mind, today I would like to review one such consensus holding with Apple. Apple is perhaps one of the best known American brand names on the planet. One would have to be in a coma for the past decade to not be familiar with and probably own one of the following; IPOD, IMac, IPAD, or IPhone. Their products have tremendous consumer appeal and are easy to use and cutting edge. I personally remember thinking about the company in 2002 and 2003. There was not a great deal to like about the company at that time.
Ok, so we can agree that it’s an innovative and highly profitable company with a bright future. However, I don’t usually associate the company with value investors. I realize that value is definitely a subjective concept. I also think (and have written about) that value investing doesn’t have to mean finding dirt cheap stocks.
Here are the financials for the past ten years;
SALES | EBIT | EPS | |
09/09 | 42,905.0 | 8,235.0 | 9.08 |
09/08 | 37,491.0 | 6,119.0 | 6.78 |
09/07 | 24,578.0 | 3,495.0 | 3.93 |
09/06 | 19,315.0 | 1,989.0 | 2.27 |
09/05 | 13,931.0 | 1,328.0 | 1.55 |
09/04 | 8,279.0 | 266.0 | 0.34 |
09/03 | 6,207.0 | 68.0 | 0.09 |
09/02 | 5,742.0 | 65.0 | 0.09 |
09/01 | 5,363.0 | -37.0 | -0.05 |
09/00 | 7,983.0 | 786.0 | 1.09 |
There are different valuation metrics that we can use to measure the company’s current price. While price/earnings ratios tend to be the most popular, I don’t use it very often. I tend to focus on price to sales, price to free cash, and EBIT yield. On all of these metrics, it appears to be fully to overvalued. But we know that value investing is more than just static metrics and ratios. How do we value growth of a profitable franchise? Some in the value community would argue that value investing means a no growth assumption. This is a mistake in my opinion. We always want to own an investment that we be larger ten years from now than it is today. On this front AAPL passes with flying colors. However, we must be careful in what type of growth assumption we use in our valuation. I usually use no more than three times GDP annual growth. Certainly companies can grow faster, but this is the exception rather than the rule. The market is currently placing a premium on the shares in terms of expected growth. Therefore, while it may have been cheap back in 2003, today it is no bargain.
Disclosure: none
