Apple (AAPL) has won a significant battle against Samsung in its smartphone patent war. There has been much hype on this announcement, and the stocks of both companies have reflected market perceptions. We have already discussed these effects in detail. Samsung (SSNLF.PK) has announced its first Windows WP8 based smartphone (Microsoft's (MSFT) new platform). Nokia (NOK) is also set to release its Lumia Arrow and Phi next week. The launch of the iPhone 5 is right around the corner; considering the smartphone series contributes more than 50% to revenues, it's an important event for all stakeholders. We believe there are trading opportunities for investors in either case. We believe that AAPL is a good buy in both positive and negative scenarios of the iPhone 5 launch. Therefore, we are bullish on AAPL.
A quick look at the quick ratio and current ratio tells us that both ratios are above industry averages. The company doesn't have any long term debt.
Quick Ratio (MRQ)
Current Ratio (MRQ)
One of Apple's biggest strengths has always been its ability to come out with amazing products by spending on research and development. This extraordinary efficiency is reflected in its profit margins and makes it the world's most valuable company. The iPhone has a profit margin of approximately 58%. The graph below shows how the tech giant dominates the industry in terms of profit margins. A look at the graph shows that Apple is the leader in profitability in all different profitability metrics. The company performs better than the sector average in most ratios.
Source: Reuter's Data
The driving force behind Apple was none other than its management in the form of the late Steve Jobs. The ratios below show that the company's management is still doing a better job as compared to the industry. The company beats both the sector and the industry in every performance metric. The ROA for the company is nearly 4 times the industry average; the ROI is more than twice that of the industry average. The five-year performance of both ROI and ROA are better than the industry.
Return on Assets (TTM)
Return on Assets - 5 Yr. Avg.
Return on Investment
Return on Investment - 5 Yr. Avg.
Return on Equity
Return on Equity - 5 Yr. Avg.
We believe that for the time being, the effects of the Samsung verdict have been priced in. The market can however react positively or negatively to September injunction hearings. For the time being, the most important catalyst for AAPL is the release of the iPhone 5. Therefore, we will analyze the stock price movement of past model releases. There is still no official release date for the iPhone, but we will assume a release date of September 12 for our calculations. The graph shows the return on iPhone launch events in a two week prior period.
AAPL on release Date
15 days before Release
Jan 9 2007
Jun 9 2008
Jun 8 2009
Jun 7 2010
Oct 4 2011
The stock reflects the performance of the market until the launch date. The market was initially disappointed with the launch of the iPhone 4S, as most people were expecting the release of the iPhone 5. The phone was later a success with customers.
Apple has a long history of keeping absolute secrecy on almost everything. Therefore no judgments can be made as yet on the success of the product before it is released to the public. However, using the past data, we can create an approximate target in price in either the case of a successful or unsuccessful launch.
Expected Launch Date
Sep 12, 2012
The stock can go up to $724 or come down to $598, depending on whether the market is disappointed or excited about the launch.
In either case, we are bullish on AAPL. We believe there is money to be made on the iPhone 5 launch. In case of a disappointing release, the dip in prices can be another good entry point for long term investors. Therefore, we maintain our buy rating for AAPL.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.