Is Apple a Buy?
While much of the recent news has been dominated by the death of Apple Inc (AAPL) founder Steve Jobs, investors are starting to look at what the company’s future may be without its iconic leader. On the surface, Apple appears to be headed for a decline as it attempts to move forward without its visionary. As anyone who has been impressed by the business savvy that Jobs displayed will tell you, now is the wrong time to underestimate the computer giant. Is Apple a “buy”? Let’s take a look and decide.
The History of Apple
Since its founding by Jobs, Steve Wozniak and Ronald Wayne in 1976, the company operated in the shadow of computer giant Microsoft (MFST). Innovative but besieged by poor product decisions and the success of its rival, Apple stumbled between mediocrity and outright failure. By the mid-1990s, Jobs began to turn around the fortunes of the company. A string of solid acquisitions allowed the company to begin expanding into other business sectors, building its base and growing its brand among new and eager consumers. During this time, Apple also began offering Microsoft Office on its computers, a move that gave it access to the millions of users who could see the company’s creativity and expertise, but wanted the familiarity of its Microsoft software.
Apple started gaining traction, and its business plan began to take shape.
Apple Starts a Revolution
As the company became better known for its excellent computers, Apple exploded onto the consumer electronics scene. Following the introduction of the iPod portable digital audio player in 2001, the company scored big hits like iTunes, PowerBook computers, iPhones and iPads. This revolution propelled Jobs to the pinnacle of the electronics world and translated to Apple’s renaissance in the stock market as well. A relative bargain at $6 per share in 2003, the stock soared over $425 per share in October, 2011 as the company released its latest version of the popular iPhone, the 4S.
Is Apple a Buy Going Forward?
While the past evolved into an incredible success story for Apple Inc, many are wondering about the future of the company as an investment in the absence of its famed leader and visionary. The past has produced a foundation for Apple, but does it suggest that investors should look forward to buying its stock? In the case of Apple, investing in the company looks to be a smart move. Compared to its chief computer rivals Dell (DELL) and Microsoft, Apple is clearly setting the pace for investment in the computer and consumer electronics industries. With a five-year revenue growth average of 41.2%, it dwarfs the 9.6% of MFST and the anemic 1.9% of DELL. The company’s five-year EPS is even more impressive, coming in at 64.9%, while Microsoft recorded 17.5% and Dell stumbled to -1.6%. In the intensely competitive cellular market, Apple has dominated until recently with the iPhone.
Research in Motion (RIMM) has risen on the strength of its popular Blackberry smartphones to challenge Apple for supremacy in the business sector. Surging past Apple in 5-year revenue growth of 57.4%, the company has nearly kept pace in 5-year EPS as well, coming in at 57.5%. In addition to its recent performance against its rivals, Apple looks to be a strong bet going forward as well. In the computer sector, only Microsoft compares favorably when analyzing key metrics such as Price/Sales ratio and Forward P/E. Virtually even in Price/Sale ratio with Apple at 3.3 and Microsoft at 3.2, Apple jumps into the lead in Forward P/E, recording a solid 9.9 to its competitor’s 8.7. As it has been the case in the computer industry during the 21st century, it looks as though the future will continue to be a two-horse race. In the cellular telephone market, Apple looks poised to regain its dominance. The company’s Price/Sales ratio of 3.3 overwhelms the 0.5 of its rival. Most telling is the Forward P/E of each company. With Apple’s impressive 9.9 to its competitor's much smaller 3.9 offering, the company appears to be far more prepared to continue its march even in the absence of Jobs.
How Does Apple Do It?
Apple is known for its great products and marketing, but the company brings a lot of things together in one incredible package. First, the company has become one of the most recognized brands in the world. Ranked by Interbrand.com as the 8th best brand in the world at $33.5 billion, the company compares quite favorably to competitors IBM (IBM) (2nd at $69.9 billion) and Microsoft. (3rd at $59.1 billion) In addition, strong product placement and product recognition for items like the iPhone, iPod, iPad and others continue to keep the company in the consumers’ minds. Having developed a very solid business strategy, Apple has also has streamlined its business processes. A near flawless supply chain and the successful implementation of Apple stores worldwide have continued to expand the company’s reach. This solid building of corporate infrastructure has been instrumental in Apple’s success, and it will likely continue. Still a Strong Buy, Apple continues to be a strong option for investors who want to enter the technology sector. The company’s past success lends credibility to its forward-looking metrics, suggesting that it would be a great addition to nearly any portfolio. Even with its high per-share price, Apple still looks to be a buy going forward. A true rags-to-riches story, the company has to the processes and products in place to make it a great investment. Even though Steve Jobs has passed, the company has a strong management core, and the legacy he left is likely to carry on well into the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.