The Problem With Apple

With shares of Apple Inc. (NASDAQ:AAPL) trading at around $461.91, is AAPL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Apple has become an enigma to many investors. However, the situation is rather obvious. Apple has simply set the bar too high for itself. At the same time, Apple is only trading at 10 times earnings, which makes it much cheaper than Google Inc. (NASDAQ:GOOG) at 25 times earnings, and moderately cheaper than Microsoft Corporation (NASDAQ:MSFT) at 15 times earnings.

Apple has a ton of cash. Debt? Zero. This alone gives Apple tremendous potential. The problem is that the innovation won’t be the same without Steve Jobs. Another negative is increased competition in mobile. There has been much talk about Samsung recently. That’s because Samsung is growing at a faster pace. However, in Apple’s defense, Apple is still the market leader. The overseas markets are getting the majority of attention. In regards to Apple, the argument is that these consumers can’t pay premium prices for Apple products. In reality, Apple is growing overseas despite those high prices. Apple just isn’t growing as fast overseas as some people had anticipated. It’s possible that Apple will lower prices overseas, but not at the expense of margins.

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In regards to security concerns, Apple is taking steps to thwart attacks. This will increase consumer confidence. Even if something substantial were to take place, it would likely only be a temporary setback to the stock price. Apple has more than enough brainpower to figure out a solution.

Below is a chart comparing basic fundamentals for Apple, Google, and Microsoft. These three companies differ in size. Apple has a market cap of $433.76 billion, Google has a market cap of $267.13 billion, and Microsoft has a market cap of $236.63 billion.

AAPL

GOOG

MSFT

Trailing   P/E

10.47

25.15

15.52

Operating   Margin

33.46%

26.68%

35.43%

ROE

38.41%

16.61%

22.62%

Dividend   Yield

2.30%

N/A

3.20%

Operating   Cash Flow

$56.73 Billion

$16.62 Billion

$30.54 Billion

Short   Position

2.10%

1.70%

1.30%

Beta

0.74

1.18

1.14

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

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