Ask HN: Who thinks AAPL is overvalued? | Hacker News Reader

Ask HN: Who thinks AAPL is overvalued?

10 pointsbdr17 comments

Everyone who talks about AAPL here seems to be long. Is there anyone on the other side? What are the arguments?

The long argument seems clear: rapid growth, high profit margins, and plenty of room to grow indicate the P/E should be higher.

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"?

(Are our models -- mental and computational finance -- incapable of handling Apple's level of growth?)

Would love to hear the dissenting take on this. It's hard to even find online.

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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.

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.

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.

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.

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.

Apple had lots of cash on hand when they agreed to a $4 billion component deal.[0] We don't know what the component is (Gruber speculates Apple bought screens), but cash on hand makes these bulk component purchases much easier. Operations-related moves like these have pushed Apple over the top recently, so I don't think investors really mind large cash reserves.

[0] http://www.macstories.net/news/apple-enters-3-9-billion-doll...

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.

(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.

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.

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.

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

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.

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

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.

> 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.

The Hitler things are just (inappropriately) funny art, I've never seen an attacking one.

Really? You mean the record 4Million iPhones sold in a weekend is a bust.

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