Appreciate your insight. All valid points but we’ll let the market handle that and move on investing something that will actually make us money.

1. No moats. I don’t think itunes or the app store are moats. I have an ipod but I have never used itunes. The app store is reproducible and I think google’s app store will probably be comparable.
2. Apple products are a bad value proposition: expensive and very shoddily constructed.
3. Its not clear Apple cares about investors as much as it cares about innovation. It has no dividend or share buybacks
4. Apple relies on innovation not monopoly. This is very dangerous since other companies may out innovate you and innovation does not occur forever.
5. The devotion to Apple is highly irrational much like SUV buyers. Most apple buyers are stupid.
6. The markets apple operates in are highly competitive and very prone to fads and status seeking. Things can change on a dime

I see very significant downside risk for Apple. I don’t consider it a great company from a Buffet point of view.

Good discussion going on Seeking Alpha on this post. Lots of comments on GAAP numbers and Non-GAAP numbers as well.

http://seekingalpha.com/article/156150-apple-is-still-a-great-investment-right-not-for-value-investors

Thanks for your thoughts. Wish I made a lot from ads but unfortunately I don’t.

If Macs could support everything I do, I would buy one in a heartbeat because you’re right, they have a superb brand and following. Definitely a moat in terms of brand awareness and emotional factors.

However, I’m not so sure that it is an equally excellent investment at its current price. The company has to do too many things right for it to meet everyones expectation.

If 99% of aapl investors take a step back from their emotions they would realise that the law of large numbers is against them. They’ve grown at a gangbusters rate but they are getting closer and closer to a huge obstacle that is far beyond the control of a company.

Apple is an excellent company. I have a Macbook myself. It’s a great machine. I don’t know if it was a “value” investment, because it was more expensive than most of the PCs I could have gotten, but it’s an impressive piece of equipment to have at my disposal. I like Apple, and I like Jobs, but I have wondered for some time about Apple’s sustainability. That’s always the problem with technology. Your time in the sun is limited. Can Apple always have such a dominant market share in premium computers and phones? So far they’ve stayed ahead of the pack while innovating – smoothly going from the iPod to the iPhone. The question always becomes, how long can that last? There next big thing surely will flop at some point, right?

One thing that they do have that’s incredibly valuable is a great brand, though. The Apple brand means a lot right now. People associate it with excellent. I think you threw that in with your “great company” analysis, but it’s worth considering somewhere in the numbers as well. Anyway, just my two cents. Great post.

Apple’s market cap is around $150 billion right now.

If its stock went up 15% per year for 10 years, guess what its market cap would be?

It would be worth $606 billion! That is a staggering number. Barring, high inflation (in which case the dollar is worth less) or some massive bubble, it is highly improbable Apple can get that big in such a short period of time.

To put that into context, ExxonMobil’s market cap is right now around $330 billion. One can’t compare a cyclical to a growth stock but ExxonMobil has the hightest market cap right now I believe (outside those Chinese companies, who we can’t rely on because China has capital controls on their stock exchanges.) ExxonMobil’s profit is around $31 billion versus $5 billion for Apple. ExxonMobil’s earnings will collapse (it’s a cyclial) while Apple’s won’t but even then, will the market place a 30x P/E multiple on Apple (the current P/E)? I doubt it.

Any company that gets above a market cap of $500 billion will have a hard time staying there. The free market slays anyone that dares to go above $500 billion! The field is litterred with corpses of Microsoft, Cisco, GE, and ExxonMobil…

Having said all that… Can you make 15% per year on Apple? In certain special cases you can, but those are not representative of typical investing. For instance, if Apple keeps issuing a large dividend, either by increasing its profits signficantly or increasing its debt, the investor may come close to 15% per year. I think it’ll still be tough but financial engineering can create wealth… or if the stock goes up and down a lot, and if investor buys at a trough, sells at a peak, then buy at a trough again, then sell at a peak, and so on, they can make 15%. This return isn’t because the company created that wealth; rather, you are profitting off clueless investors who buy at a peak and sell at a trough…
.-= Sivaram Velauthapillai´s last blog ..Newbie Thoughts: Characteristics of my newbie (concentrated) portfolio [VERY LONG] =-.

Thanks. Cant do anything but laugh on comments like this. Warned you that you wont like my price target.

It isn’t the FCF average growth rate. The FCF growth is astronomically high so I couldn’t use that. Instead the CROIC is exactly 15.2% when I compare the past years in a staggered fashion, normalize and then taking the mean to remove one time spikes.

Over the long run CROIC and FCF growth usually converges because as the company grows the numbers in the financial statements should balance. A company that is able to return 15% of its cash will have an additional 15% of cash to invest.

However, if FCF continues to grow at e.g. 40%, it is likely the company won’t be able to utilize the cash effectively all the time at which point it will slow down and converge to meet CROIC.

From what I see in the numbers, Apple FCF growth is starting to decline compared to their previous years. Which is my reasoning for using 15%.

Ben Graham formula gives a value around $175. Not much higher than where it’s at now. Definitely fairly valued at the moment.

@ Josef
When I calculate the intrinsic value with the DCF method, I add tangible shareholders equity to the sum of the future cash flows which will take into account the cash on hand.

Also, I would think that the entire market knows how much cash they have. Isn’t exactly a hidden or overlooked number.
AAPL also seems to be slowing down. Their FCF is growing at a rate they cannot invest and once AAPL starts looking to distribute dividends it will be a sign that Apple has matured from its growth phase.