The factors that matter most in the Apple stock price and when to invest.
Two analysts just released their targets for Apple stock price, one calling for a 25% drop in the shares and another predicting shares will surge by 25% from here. Which is right and how do you know when to invest in Apple?
In this video, I’m doing a complete Apple stock analysis including an analysis of the dividend. I'll reveal the most important factors in the Apple share price and when to invest.
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Apple Stock Price Analysis
This is a video everyone in the community has been asking for, a complete rundown of the Apple stock price and dividends. While I mostly stick to strategy and those portfolio-wide decisions, Apple is just too big to ignore so I thought I’d put together a quick video on what I’m watching.
Instead of just doing an Apple stock analysis though, I’m going to show you the most important factors in the stock. I’ll run through the full analysis and reveal how you can follow the stock yourself in the future.
It's easy to see why Apple investors love the shares. The stock only pays a 1.5% dividend but has produced a 17% annualized return since trading in 1980. Over the last decade, shares have surged 25% on an annualized basis for a nine-fold return on your money.
But like most stocks right now, shares of Apple are looking a little expensive. The graphic here shows that Apple stock is trading at 16.8-times the company’s earnings which is down from 18-times last year but still on the high end of history. There’ve been several times when the shares traded as low as 10-times earnings or around 12-times shown here in the last few years.
Upcoming Apple Earnings
The market expects sales of Apple products to be up just 1.5% over the next year to $262.3 billion so not the kind of top-line growth that makes you feel good about a stock. More importantly, the street expects Apple earnings to be up just 0.76% over the next year to $11.98 per share.
That means any increase in the stock price will mostly have to come in the form of a higher price-to-earnings ratio, an increase in that 16.8-times investors are willing to pay for the earnings.
Of course, the good news is that Apple has a history of beating expectations for earnings. Through managing those expectations for profits, Apple is almost always able to surprise on the upside when it releases quarterly earnings.
That upside surprise isn’t huge, about 4.6% higher than expectations on average over the last eight quarters, but it means the company could report around $12.58 per share in earnings over the next year.
That would bring the current valuation down to 15.9-times earnings and leave a little room…not much but a little room for upside in the stock price.
Apple Dividend Analysis
Now let’s look at some Apple dividend analysis and then I’ll walk through the fundamentals that are really driving this stock.
So Apple isn’t much of a dividend stock paying just 1.5% yield annually. Currently that means you get a $0.77 per share dividend each quarter or about $3.08 total a year. The upside to this is that Apple has a huge stockpile of cash so it’s been increasing the dividend steadily over the last several years.
Apple grew its dividend payment by an average 11% over the last four years though this year looks like it will come out at 9.2% growth. Apple is paying out about 23% of its earnings for the dividend, so still lots of room to increase the dividend but management seems to favor share buybacks instead.
Last year’s $13.7 billion in dividend payments was a nice little cash return but nothing compared to the $72.7 billion Apple spent to buy back its own shares. That share buyback program goes a long way to explain how Apple can consistently beat earnings expectations on a per share basis. Essentially if you buy back more shares, your earnings are spread out across fewer and your earnings per share increases.
Apple Stock Fundamentals
Apart from this bit of financial engineering, Apple has some really strong finances. The company produced $64 billion in free cash flow last year and has $80 billion in balance sheet cash against $90 billion in debt.
So that’s the numbers behind Apple stock and the dividend but let’s look at that deeper analysis. What are some of the larger issues driving the shares and how can you follow the stock in the future?
Those of you in the community know, I’m always preaching that you should compare stocks within their industry. So you compare tech stocks with tech stocks and utilities with utilities. Companies in different sectors just trade on different metrics and you need to be comparing them apples-to-apples to get a fair value.
That’s tough to do with Apple though. Is it a tech company or a consumer goods company?
If you looked at other companies in the tech hardware space, then Apple’s price to earnings ratio of 16.8-times last four quarters’ earnings looks a little expensive considering the industry trades for an average of 15-times earnings. Looking at it as a consumer discretionary company though, so maybe compared to specialty retailers, the shares could be slightly undervalued.
So you have to take a blended look with Apple. While the company competes in a pretty commoditized market for hardware, meaning there isn’t a lot that separates companies on function, there are a few unique ideas that sets Apple apart.
First is just that Apple’s relatively closed operating system makes switching difficult for consumers and the strong brand allows it to charge a premium on the products. The iOS ecosystem, so that interoperability among all its different products, means once Apple has you in on one of its tech, it’s a good chance you’ll be buying other products.
Apple Stock News
On the news front, it looks like Apple sales in China have been improving a little on recent price cuts though sales and phones sold will still likely be down from last year when the company reports its second quarter results. Remember, China is 20% of Apple’s total sales so this is a huge chunk and I think we’ve yet to see all the pain from the recent trade tensions.
Another bombshell was dropped lately that long-time Chief Designer Jony Ive was leaving the company. Now this is huge because Apple’s brand has always been built around that unique design and Ive has been at the center of it. He’s been at the company for more than 30 years and has been instrumental in everything from the ’98 iMac redesign to the iPhone.
It might not be quite as bad as it seems though because Ive is leaving to found his own design company and will still work with Apple on its products. Even though Ive is said to be working with Apple going forward, it’s not going to be the kind of relationship you had before so you have to ask yourself if Apple’s design bench is strong enough to get through this transition.
For Apple investors, the stock price has always been about the hardware cycle. If you look at a ten-year chart of Apple stock price, you immediately see where it took longer to release new iPhones or when a product refresh cycle was expected. For example you get huge surges after the iPhone 5 replaced a long wait in 2013 and when the company released the iPhone 7 and a list of other products in 2016.
The problem going forward is that it looks like Apple is trying to move away from those big events around their releases. The recent rollouts of iMac and iPad were nothing more than a press release and the iMac Pro didn’t even get that.
Now some of this has to do with the fact that recent upgrades were incremental at best. The iPhone is still a big chunk of sales and has a fairly regular upgrade cycle so you should still expect the big September events to highlight those.
And on the upside, 2019 is expected to be a big product refresh for the company with just about every hardware line getting an update. We’re expecting three new iPhones this fall with two of those sporting the new OLED screen versus the older LCD model. OLED has far better contrast and can be viewed from pretty much any angle but it’s also more expensive so expect the price tag to show that in the new iPhones.
The new iPhones are also expected to have a triple-camera setup on the back of the phone and an upgrade to the front TrueDepth feature which could make it capable of producing a 10-megapixel image.
Shares have bounced 14% off their May low with part of it being new product rumors and part the easing trade tension with China. The refreshed product cycle is definitely a positive for the stock but will it be enough to drive the shares higher?
Apple Stock Price Targets
Let’s look at some analyst price targets and then I’ll share my price target for Apple stock as well as a recommendation. First though, if you’re likin’ the video and the information, do me a favor and tap that thumbs up button below.
Apple is one of the most widely covered companies with 36 ranked analysts providing an estimate. The average analyst price target is just over $213 per share which is about 6.8% above the current price.
Those estimates range from $250 on the high side, so a 25% upside call issued by Jim Kelleher over at Argus Research, versus a low target of $150 a share by Jun Zhang over at Rosenblatt Securities with a Sell rating and a 25% downside.
Deciding on whether to buy shares of Apple means putting all this together, the fundamental analysis along with the market news. Right now it looks like everything is revolving around sentiment for the stock, how much are investors willing to pay for the Apple brand and those earnings?
Will investors continue to offer 16-to-18 times earnings? On our $12.58 per share earnings target, that would mean between $201 to $226 per share over the next year.
What if investors back down to a range of 12-to-14 times earnings? That would mean a target of between $151 to $176 per share for Apple.
Will the September refresh in the iPhone be enough to boost sales and earnings above expectations for this year and the next? A lot of the recent bounce back in the shares was on price cuts in emerging markets, so improving sales but at a cost of lower profitability.
Considering investors in Apple have always pointed to the company’s high profitability compared to peers, I think pricing on the new phones in September will come out at a premium to protect those margins. Will the overall economy and new features support that pricing?
Personally, I see a bigger downside risk in the Apple stock price right now versus that upside potential. Obviously this might change depending on when you’re watching the video but that mid-point between $151 and $176 per share is 18% lower than the current stock price. That mid-point on the high side of between $201 to $226 per share is only bout 7% higher so lots of downside for a limited upside potential.
Apple is a solid company and can be a part of your long-term portfolio. Keep an eye on these fundamentals we’ve talked about and consider holding off for a better price.