Apple

November 18, 2008

Ticker: AAPL

Apple is a diversified consumer electronics company – with some of the most popular electronics products available today. Products like iPhone, iPod, iMac are extremely popular products not only in the US, but also globally.

Apple designs, manufactures, and sells its products like the iPhone, personal computers, portable digital music players, and mobile communication devices. It also develops the related software, services, peripherals, and networking solutions worldwide. Apple has more recently also opened retails stores and that has helped the company in a big way. Apple's retail stores have established themselves as an effective means of reaching new users and marketing both brand visibility and loyalty. Apple is the best revenue per square foot retailer in the world

Apple morphed its identity in early 2007 to reflect its transition toward a broad-based consumer electronics company, removing "Computer" from its corporate name. It launched the iPhone which was immediately very well received by consumers - with 3.7 million units sold worldwide in 2007.

Apple 's Q4 2008 results showed 6.9 million iPhone 3G handsets sold. That number was higher than the 6.1 million total 2.5G handsets sold in the previous 5 quarters. The total iPhone sales are well on track to exceed Steve Job's stated goal of selling 10 million 3G units this year. I wouldn't be surprised to see the iPhone sales get a further boost during the upcoming holiday season – despite the economy.

For those still deciding between a Blackberry and an iPhone – here's a little piece of information that may help –

According to the SquareTrade Research "..the relative malfunction rates reported after the first twelve months of ownership. iPhones are the least likely to malfunction, with 5.6% of handsets reporting a malfunction within the first year. This is less than half the reported rate of BlackBerry handsets at 11.9%. Owners of Treo handsets reported the highest rate of the three, with 16.2% having a malfunction within the first 12 months of ownership" (Report)

Earnings

		Actual (USD)	Estimates (USD)	Surprise
Q4 2008		1.26	1.11	$0.15(13.31%)
Q3 2008		1.19	1.08	$0.11(10.39%)
Q2 2008		1.16	1.07	$0.09(8.11%)
Q1 2008		1.76	1.62	$0.14(8.84%)

The earnings figures speak for themselves. Apple has consistently defeated analyst earnings estimates since Q2 2005 (I did not check before that – that amount of data is representative enough for me).

The Cash Flow per share (CPS) for Q3 2008 was at $1.46. The company has very little debt on the balance sheet (Click here for financial statements).

View the full AAPL chart at Wikinvest

Some more numbers – Industry comparison

Apple's P/E Ratio is at 16.5 - investors have been willing to pay more for its level of earnings relative to future growth. Its Gross Margin (34.3%) is more than 69% of other companies in the computer hardware industry, which means it has more cash to spend on business operations as compared to its peers. The Operating Margin (19.3%) indicates that it controls its costs and expenses better than 98% of its peers in the computer hardware industry. The Return on Equity (27.2%) shows that Apple is able to reinvest its earnings more efficiently than 94% of its competitors in the industry. The asset turnover and inventory turnover rates are pretty robust as well – indicating their strong ability to move inventory and generate sales.

In the past I have stayed away from this stock due to various factors – including but not limited to high P/E – but I think based on the current facts and figures Apple does make a compelling case – I will be monitoring its performance (and also that of RIMM) over the next few weeks.