Apple | Fundamental Analysis | MUST READ !!!

10 de nov. de 2021

Apple's stock price plunged recently after the tech giant released a mixed Q4 earnings report. The company's revenue increased 29% year over year to $83.4 billion, $1.6 billion below analysts' expectations. Profits rose 70% to $1.24 per share and were in line with Wall Street forecasts.

Apple explained its slow increase by supply chain difficulties that reduced Q4 sales by $6 billion. The company expects these difficulties to further affect first-quarter sales.

These problems largely shadowed CFO's comment that Apple is still undergoing "better-than-expected demand" for its products during the company's conference call. Should investors bypass Apple after this disappointing quarter or view its latest drop as a buying opportunity? Let's break it down.

Apple's iPhone, Mac, and iPad divisions encountered supply chain problems during the quarter, but nevertheless, all three segments increased YoY.

The wearable devices, home products, and accessories business grew thanks to increased sales of Apple Watches and AirPods. The closely watched services business also developed, thanks to an increase in cloud, video, and music subscriptions; the App Store brought "record" revenue (notwithstanding continued pressure to lower fees); Apple Pay and Apple Care gained more users.

At the end of the fiscal year, Apple had 745 million paid subscribers for all services, nearly five times as many as five years earlier, and annual revenue from the services has nearly tripled over the past six years. This continued buildup should widen Apple's "gap," increase the "elasticity" of its digital ecosystem and reinforce the brand loyalty that supports its pricing power in the hardware market.

That's why Apple's gross and operating margins grew notably in both the fourth quarter and for the full year, even as the broader smartphone, tablet, and personal computer markets were commercialized by cheaper devices.

Apple's growing operating margins show that the company still has enough power to make deals with its suppliers. It also doesn't need to count too much on costly marketing campaigns to ensure steady sales growth.

In addition, Apple continued to post double-digit revenue growth in all five major geographic regions in the fourth quarter.

Apple's extensive extension in the Greater China region, which accelerated from 58% growth in Q3, should silence pessimistic claims that the company would lose ground to Chinese competitors.

According to Counterpoint Research, Apple's share of the Chinese smartphone market rose from 8 percent to 13 percent in the third quarter of 2020-2021, even as critics feared possible bottlenecks associated with a trade war, a technology war, and other geopolitical issues.

Apple's near-term earnings growth may be held back by chip shortages and other supply chain problems, but the company continues to return a large chunk of free cash flow to shareholders through large buybacks and dividends.

In the fourth quarter, Apple bought back $20 billion worth of stock and paid $3.6 billion in dividends. For the full year, the company bought back $86 billion worth of stock and reduced the number of shares outstanding by nearly 4 percent.

Apple had $191 billion in cash and marketable securities at year-end, giving it ample room for future investments and acquisitions. A forward dividend yield of 0.6% may look insignificant matched to other high-yielding technology dividend stocks, but this low yield also gives more freedom for large buybacks and prudent investments.

For the full year, Apple's revenue and earnings per share (EPS) are up 33% and 71%, respectively.

For 2022, analysts believe those numbers will improve only 4% and 2%, respectively, as the iPhone will be harder to match year-over-year against competitors. This slowdown may seem frustrating, but Apple has always been a cyclical company that counts profoundly on hardware upgrade cycles.

Apple's growth cycles are expected to continue as it extends its services ecosystem and enters new markets such as augmented reality devices and connected cars. So, its stock still seems to be reasonably valued at 27 times forward earnings. If you agree with this view, it's more prudent to buy Apple stock after its latest post-report decline than to sell it just because the company is facing short-term supply chain problems.