Ignore Apple Naysayers: Look at Its Earnings

The market is finally realizing that Apple's business is best reflected by free cash flow and non-GAAP earnings; because these reflect the high growth high margin iPhone business. GAAP numbers, in contrast, miss it all. I've seen analysts one after another wake up to this story that I've been trumpeting for two years now .

Who ever saw a large market cap company nearly double its FCF and non-GAAP year over year as analysts and bloggers put "sells" on the company? Apple (AAPL) accomplished this feat in the middle of the largest recession/depression since the '30s. It shows the power of hysteria in taking down Apple from 200 to 78 (through investors listening to "The Theater of the Absurd") while ignoring the company's explosive growth. Word of caution: the naysayers are still out there.

FCF: 2006 - 1.56 billion; 2007 - 4.7 billion; 2008 - 8.5 billion; TTM - 10.2 billion (Morningstar).

Non-GAAP Revenue: 2006 - 19 billion; 2007 - 24 billion; TTM - 42 billion.
Non-GAAP Profits: 2006 - 2 billion; 2007 - 3.5 billion; TTM - 8.3 billion.

(Non-GAAP Revenue and Profits for 2008 are not listed because Apple did not break them out. I've used GAAP revenues and profits for non-GAAP 2006 and 2007 because either the iPhone did not exist (2006) or was too small an amount to be substantive (2007).)

Disclosure: Long Apple.

Comments

[EJC1645:]

Not only are the earnings picture and free cash flow impressive,
investors should not lose sight of the fact that Apple's long and
short term debt is Zero. That is a big deal !!
Ed

Sep 07 09:53 AM

[Tom B:]

The naysayers fail to recognize that, with about 5% computer market share worldwide, Apple could easily grow 20 fold. They also fail to recognize that the recent interest is small, mobile devices plays right into the iPhone as people become disenchanted with bulkier, more limited devices, like NetBooks.

Sep 07 11:23 AM

[pmcw:]

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Sep 07 01:27 PM

[Neil Anderson:]

Analysts are finally waking up and smelling the apple sauce.

Sep 07 07:35 PM

[Techtrader10:]

Hey Neil,

Where have you been for the past few years? There has been a stampeed of analysts recommending Apple stock! I can't think of any analyst that hasn't jumped on the band wagon. They perpetually up the price target. You need to get out more.


On Sep 07 07:35 PM Neil Anderson wrote:

> Analysts are finally waking up and smelling the apple sauce.

Sep 07 09:35 PM

[Techtrader10:]

I want to ask Mr. Rosenman a question. Is anything you state new? It appears that all the information you quote would be old news. Why would this be a reason to buy the stock now? This information has been out for some time and you would think already priced into the value of the stock already. (No current position in the stock)

Sep 07 09:47 PM

[john1940:]

Apple is a great company and is executing well. It's still difficult to envision significant growth at these levels -- especially with a p-e of 30, prices falling on computers, and new competitive smartphones on the way. Could be done, but difficult.

Sep 08 08:17 AM

[Infinite loop:]

@john1940,

Stocks don't trade on P/E. Never have, and never will.

In the past 20 years I have made a killing on high P/E equities, and made very little on low ones. Proving P/E matters little, or at least has an inverse correlation.

I might note also, that Apple's profit margins are expanding, not contracting. And all during the worst recession since 1929. Im afraid your line of thinking is typical of what keeps people from owning AAPL, and missing the 100% run-up this year alone.

Sep 08 08:53 AM

[xmplary:]

Apple has proven the naysayers wrong for again and again, the naysayers would be dead before Apple! Apple has continued to re invent itself from the ashes, many many times and should be renamed Phoenix!

Sep 08 10:15 AM

[Risky Business:]

You'd be well advised to look at volatility and correlations rather than "naysayers". It wasn't the naysayers that brought Apple down from 200 - it was near-record high volatility and a falling market. When volatility spikes, everything moves together. That's why I took my money off the table and I'm waiting for a pull back. I'll get back in below 140.

Sep 08 10:48 AM