

Ask HN: Who thinks AAPL is overvalued? - bdr

Everyone who talks about AAPL here seems to be long. Is there anyone on the other side? What are the arguments?<p>The long argument seems clear: rapid growth, high profit margins, and plenty of room to grow indicate the P/E should be higher.<p>For recent history, the stock price has looked like Moore's Law. Was there a risk being eliminated over that period? Or was their success "continually surprising"?<p>(Are our models -- mental and computational finance -- incapable of handling Apple's level of growth?)<p>Would love to hear the dissenting take on this. It's hard to even find online.
======
natural_order
At the moment Apple have cornered a market based on their (Steve's) company
policies. Eventually "Apple Fever" will wear off and another company will
produce something so amazingly worth spending $600 on.

This however, is the same as any company's stock history. My argument is that
the future of AAPL isn't in mobile devices (exactly) but in producing parts
for it. It may be comparable to Intel sometime soon.

------
Kishin
I love apple, and I am an apple investor. Their stock will do fine for at
least a few years. Though, no one knows if apple will stay "cool" and their
products will still sell 4,000,000 units (iphone 4S) in a weekend. Many people
thought nothing would happen to Sony when they were hot and innovative. Same
thing with Microsoft.

It is slightly different because Apple has more vertical integration and
horizontal integration as well, so people buy into the Apple ecosystem. For
example, I have a mac and an Android phone, but I like the way the iPhone
syncs seamlessly with my mac, so I might get an iPhone when my contract is up.

Ultimately, sales/revenues and profits GROWTH determine the stock price. At
their current P/E it is hard to say they are overvalued. A multiple of 16.63
(close on 10/17) is very low for a high growth tech company. In fact,
McDonald's, which is considered a value stock, has a higher multiple (almost
18). And as a more relevant example, Amazon's is over 100. Apple clearly is
not overvalued at this point (in my opinion at least).

Random thoughts: Apple has roughly 1 billion shares outstanding and Microsoft
has 8 billion. If Apple did an 8 for 1 stock split, the price would be at $50,
and no one would ask this question.

------
brudgers
Apple has a problem - too much cash on hand.

Yes, yes, "It's a great problem to have."

But only if you are an actual person.

However, Apple is a publicly traded company and different logic applies and
none of the alternatives are good.

So long as Apple holds the cash, there is the implication that they lack a
long term strategy in which they are confident enough to invest a large sum of
money.

Conversely, if they can't spend that much cash expanding their business
without announcing their plans prior to product role out unless they use it
for acquisition.

The problem with acquisition is finding a plausible candidate valued at
$50-$100 billion, and it is highly unlikely they can quickly buy a portfolio
of smaller companies large enough to make a dent in their cash without
significant risk of public failure inherent in a bad purchase.

As for paying a dividend, that suggests a lack of vision and long term
strategy even more strongly than any of the other alternatives.

A large amount of cash on hand of course isn't the worst problem a company can
have, but it suggest a certain degree of inertia.

~~~
latch
I think you are painting with strokes that are too broad.

First, and most seriously, I think your assessments of dividends is pretty
horrible. Dividends aren't only a good way for a company to return value to
investors (which a public company is legally obligated to do), it's frequently
one of the most tax-friendly ways.

Secondly, you need to consider that Apple's two biggest competitors, Microsoft
and Google hold large cash reserves also. It would potentially be catastrophic
to has significantly less cash on hand than either. Essentially, all three
companies are forcing each other to hold cash on hand.

Finally, there's a limit to how fast a company can grow, and there's a limit
to what cash on hand says about a company when that company is doing quite
well. Looking at a number on a balance sheet and saying "that's not going to
work", when the company is turning over profits, inventing new markets, and
has comparatively killer margins is wrong.

~~~
idoh
How is a dividend more tax friendly than a stock repurchase?

Some of AAPL's cash may have to be repatriated, at which point they'd have to
pay corporate tax on it. Then the dividend would be taxed at a rate equal to
income for US taxpayers. Whereas a repurchase ultimately results in capital
gains, and the money may not have to be repatriated either.

------
ActVen
Stock prices for companies like Apple have little to do with fundamental
value. Prices are based largely on the trajectory of the company's success in
the recent past. Apple has done some outstanding things in the last five
years. There is not a tangible failure they have had that would make the
market think this history of success would not continue, except for the
resignation and passing of Steve Jobs. I think you will see a major reduction
in price when Apple makes its first significant mistake in the post-Jobs era.

------
stonemetal
(Note: this is dumb, country hick opinion, don't take advice from me.) Apple
doesn't pay dividends. So if you are holding apple stock then you expect apple
stock to go higher fast enough to be worth holding. What is going to drive
that growth? The iPhone market is saturated. The desktop market seems to be
holding steady for them. The iPad has been around over a year now so it
probably isn't saturated but I doubt it will drive a 5%(or whatever ROI you
would like to make) a year growth in the company's stock price.

~~~
warmfuzzykitten
Strange use of the word "saturated". They sold 4 million in the first weekend.
Everyone wants an iPhone; the only thing holding them back are price and
connectivity. Therefore, the iPhone market is the phone market. Apple
currently has 4% of that market. (When he introduced the iPhone, Steve Jobs
said even 1% of that market would be huge. It has exceeded his ambitions 4x.)
That leaves 96% of the market, which is still growing, to expand into. So,
saturated? I think not.

~~~
stonemetal
How many of those were upgrades vs new customers? They may "only" have 4% of
the cell phone market in general but they have a much larger percentage of the
smart phone market. By saturated I meant that anyone who wants one has one.
You can get them free with contract, so they have already completed the race
to the bottom. iPhone's future mostly consists of replacement rate, and the
gradual death of dumb phones.

------
GoldenMonkey
Read asymco.com , even though he is long on the AAPL stock... at least his
reasoning is based on analysis.

------
afdssfda
Today (October 17, 2011), it went down. And, of course many will see Jobs gone
as a problem, as well as iPhone 4S being somewhat of a bust. Whenever they
release iPhone 5 and their killer settop media/gaming box, their stock may go
up. But, for the most part the market is currently volatile and people are
less in the mood to spend on higher cost products, so I would bet on a
downward trend. Who knows though. I would not buy now.

~~~
DigitalBison
What data do you have to back up your claim -- after 3 days have passed since
release -- that the iPhone 4S is a bust?

~~~
afdssfda
Many were expecting more and may hold off for the 5. Sari is good for the
first elitists that want to show it off, but people want to use their devices
quietly- not talk to them. Although many don't want to admit it, it was a bad
idea. When you have Gizmodo post a link to a Hitler video making fun of it
immediately, you know it is bad. Not to be callous, but Jobs death probably
spurred a lot of buying. That probably won't sustain.

~~~
ceejayoz
> Many were expecting more and may hold off for the 5.

The target audience for the 4S is not 4 owners, it's 3G/3GS owners who have a
subsidized upgrade burning a hole in their pocket.

> Sari is good for the first elitists that want to show it off, but people
> want to use their devices quietly- not talk to them. Although many don't
> want to admit it, it was a bad idea.

It's a phone. The primary purpose of a phone is to be talked to.

> When you have Gizmodo post a link to a Hitler video making fun of it
> immediately, you know it is bad.

The tech press is very different from the general public.

