The 2013 fiscal year has not been that much of a good year for Apple (AAPL) shareholders, but they have been through much worse. Currently, what investors need to realize is that Tim Cook does not have the pizzazz of Steve Jobs who would stand up at an Apple conference and the company's stock would zoom. Instead, investors should focus on the company's current valuation metrics and perhaps spend more time making decisions based on the company's future.
The recently released fiscal Q4 results closed the books for a sobering year that saw the Cupertino-based company's market value take a 25% plunge. However, despite the downturn, Apple still remains the world's most valuable company.
The Vexing Phenomenon
According to the aforementioned results, despite the rise in iPhone and iPad sales, Apple earnings still sagged, a vexing phenomenon that continues to worry investors. In fact, Apple's earnings have now fallen from last year in three consecutive quarters after a decade of steady growth. It is understandable for investors to get worried, especially when the competition in the mobile device market continues to significantly undercut the company's prosperity.
Apple's key devices, the iPhone and the iPad, are still iconic in nature and credit should be given to the company for reshaping the smartphone and the tablet market with the release of the first iPhone in 2007 and the 2010 introduction of the iPad. However, it seems like the competition is doing its best to outdo the California-based technology giant in what it knows best. For instance, according to this report from Counterpoint Research provided to the Guardian, Apple pushed ahead of Samsung (GM:SSNLF) in the US in September smartphone sales for the first time in six months, but the Korean tech giant is still ahead in general.
Taking Advantage of the Near-Term Share Price Weakness
On a positive note, Apple's September quarter results indicated $37.5 billion in revenue and record iPhone sales of 33.8 million for the three-month period, up 26% from 26.9 million in the same quarter last fiscal year, as well as 14.1 million iPads and 4.6 million Macs. This meant that the company earned $7.5 billion in profits, or $8.26 per share. That compared to an income of $8.2 billion or $8.67 per share, last year. That aside, basing on the current valuation metrics, Apple is trading at a P/E of 13 with a 12-month forward price target of $575, up from the current share price of $520 (Nov. 4, 2013).
I believe that Apple offers a safe haven for investors in the near future (the next two years at least), at which point I believe the company will have at least $200 billion in cash, not counting any stock repurchases as proposed by Carl Icahn.
On that note, I strongly concur with JPMorgan's analyst Mark Moskowitz who recommends that investors need to take advantage of any near-term losses in Apple's share price. Following the strong September quarter and expectations of a huge holiday, he expects AAPL to find firmer ground in the coming days.
Apple's management predicts revenue of between $55 and $58 billion for the current quarter ending December. This is an upward adjustment to the $55.5 billion projection by analysts. However, the big question that most market participants and investors are asking is whether Apple is worth buying at the current share price? Why not, considering the current upside revenue growth trajectory supported by:
1. Apple's Product Cycles Kicking Into Gear
Of late, Apple has been facing stiff competition in the mobile device market from companies like Microsoft (MSFT), Google (GOOG) etc. As a response to the ever-growing competition, Apple has been focusing on rolling out new iPhones and iPad for the end-of-year shopping season, which is Apple's most important quarter. On Nov. 1, 2013, Apple launched the iPad Air, which is a 9.7-inch iPad and 20% thinner than its previous models. Also, later this month, Apple is expected to release the Retina iPad Mini ready for the crucial holiday season, a move that is expected to drive the company forward during this quarter.
2. The Company's Wild Cards
Analysts expect multiple catalysts for Apple over the next 12-18 months. This includes the sixth generation iPhone, and expected expansion with China Mobile, which will prove to be the main growth driver judging by Apple's performance in Japan. As for Apple's much-anticipated new product lines, which investors expect the company to enter in 2014, the iTV and iWatch are already in the company's pipeline. Such products are expected to alleviate any innovation concerns hence further pushing Apple's growth forward.
Also, one thing that not many people are talking about is the Apple ecosystem. The truth is Apple doesn't make a lot of money from iTunes. However, I am not saying that iTunes is not important to Apple, it is crucial. In fact, what attracts customers to Apple's products is the quality of its products. Once you buy in, you are more or less likely going to get stuck with the device. Apps purchased for iOS have to be repurchased on competing operating systems like Android. This means that Apple product consumers are not likely to stray even if a competitor puts out a more attractive device.
According to surveys, more than 9 out of 10 current iPhone owners intend to stick with their mobile devices up until the next upgrade cycle. Perhaps this could be attributed to huge amounts of resources Apple has poured into the ecosystem.
The Bottom Line for AAPL
I continue to believe that Apple offers a golden opportunity for investment. The stock at its current price offers an investment opportunity that comes with a rare possible risk attached to it. The company intends to position its current products as a platform for launching other new products including the iTV and the iWatch. As I see it, numerous improvements have been made on the iPhone 4S design and the new iPad, which are currently performing very well, compared to other mobile devices in the market.
If Apple succeeds in its plans especially with its expansion to other markets, especially China, we can be talking about share prices ranging from low to mid-$600, of course that is in the long run, at least 24 months I believe. However, for now I will stick to my $520 +/- 10% share price range.