Apple’s (AAPL, Financial) recent struggles have many people doubting the company’s long-term potential. With the stock selling off almost 15% in just a matter of days, investors are getting nervous about the upside potential of the stock.
However, with Apple still reporting tens of billions of dollars in profits in every quarter, the company should be able to find new ways to propel growth. Due to the present growth concerns, I think the stock is perfectly priced and investors should wait and analyze the company’s future prospects before investing.
A beneficial value
Recently, due to Apple’s execution of its share repurchase program, the company’s capital structure has moved considerably toward debt, accounting for approximately $72 billion in long-term debt. This is a not a big problem, however, because the company can easily pay the interest and the net outcome is a significant drop in its weighted average cost of capital.
Apart from this, it also means that valuation metrics like enterprise value become more valuable, as enterprise value influences in debt and cash. Enterprise value accounts for the company's market cap together with the market value of its debt excluded cash. In spite of plummeting abundant amounts of debt-funded cash flow into share repurchases, the company’s net cash situation continues to surge.
The company went through the same situation in between 2012 and 2013, which demonstrated to be one of the most captivating investing prospects that the company shares have offered in years.
But now, it looks like that Apple can do no right, as its iPhone unit sales appear to be maxed out as the smartphone market has elevated. China is going through some strong comparisons after rising in 2015.
Acquisitions are tough
Siri was one of the last acquisitions done by Apple. After that, the company has not done much in improving Siri-like facilities as compared to other major tech firms. Simply purchasing trivial companies to assimilate their products will not be sufficient if the startup culture smashes with Apple's software culture.
As a matter of fact, most of the company’s software services are comparatively dull stuff like Music, iTunes, Storage and Apple Care. While Apple Pay is a nice move, it is not projected to produce significant revenue in the near term.
The company should make bigger acquisitions to get back on the right track, and acquisitions should be device-independent. These acquisitions should be based on web services that can be used from both Apple as well as other devices.
Conclusion
As of now, I think investors should focus on Apple’s acquisitions. Buying the right companies can propel Apple’s growth going forward. But the stock looks perfectly priced right now and I would suggest investors to watch it from the sidelines.
