➡️ This is a step-by-step stock review to determine if Apple (AAPL) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.
Apple was founded in 1976 and is headquartered in Cupertino, CA. They have about 522 retail locations across 25 countries and they have over 164,000 employees worldwide.
Table of Contents
- Step 1: Tykr Rating
- Step 2: Apple Company History
- Step 3: Apple Business Model
- Step 4: Apple News
- Step 5: Apple Competition
- Step 6: Apple 4Ms
- Step 7: Is Apple (AAPL) stock a good buy?
Step 1: Tykr Rating
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.
- Summary: On Sale
- Score: 61/100
- MOS: 75%
- Share Price: $145
- Fair Value: $398
Step 2: Apple Company History
➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition
- Apple was founded on April 1, 1976, by Steve Jobs, Steve Wozniak, and Ronald Wayne to develop and sell Wozniak’s Apple I personal computer.
- The company was incorporated in 1977.
- Apple went public in 1980.
- Ridley Scott (director of Alien, Gladiator, Black Hawk Down, and more) directed the critically acclaimed “1984” commercial which introduced the Apple Macintosh personal computer to the public. The message of the commercial is “save humanity from conformity”. It definitely feels like an 80’s commercial with a Blade Runner / Prometheus vibe.
- In 1985 the high cost of products and power struggles between executives caused major disruption. Wozniak stepped back from Apple and Jobs resigned to found NeXT where he took some employees with him.
- Personal computer popularity expanded in the 1990s and Apple began losing market share to Microsoft.
- In 1997, Apple was on the verge of bankruptcy, and the company decided to buy NeXT for $400M to resolve Apple’s unsuccessful operating system. At this time, Jobs was given an advisory role at Apple.
- In 2000, Steve Jobs became CEO of Apple, for the second time. He presented two products that would pave the way for Apple’s profitability over the next decade. Those products included the Mac OS and iTools which became iCloud.
- In 2001, Apple launched its first two Apple Store locations in Virginia and California.
- In 2001, Apple launched the iPod and over the next six years, Apple sold over 100 million units.
- In 2003, the iTunes store was introduced. The service offered music downloads for $.99. The iTunes store quickly became the market leader in online music services which 5B downloads between 2003 and 2008.
- In 2005, Apple announced it would move away from PowerPC processors to Intel chips.
- Between 2003 and 2006, the profitability of the company skyrocketed and the share price increased by over 10X going from $6 to over $80.
- In 2007, Apple announced the iPhone and Apple TV. The company sold over 270,000 iPhones in the first 30 hours.
- In 2008, Apple launched the App Store to sell applications for the iPhone and iPod Touch. Within one month, the App Store sold over 60 million apps and the average daily revenue skyrocketed to over $1M. At that time, Jobs speculated that the App Store could become a billion-dollar business on its own. As of 2022, the Services division, which includes the App Store, generated $78B.
- In 2009, Jobs took a six-month leave of absence to focus on his health.
- In 2011, Jobs resigned and passed away two months later at age 56 as a result of battling pancreatic cancer. Tim Cook then assumed the role of CEO.
- In 2018, Apple reached a valuation of over $1T.
- In 2020, Apple reached a valuation of over $2T.
- In 2020, Apple announced it would move away from Intel processors and transition to processors developed in-house. The result was the high-performance M1 chip that went into the MacBook Air, MacBook Pro, and Mac Mini.
- In 2020, Apple began working on the M2 chip.
- In 2022, Apple opened an online store that allowed anyone in the US to view repair manuals and order replacement parts for recently developed iPhones.
Step 3: Apple Business Model
How does Apple make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
Apple generates revenue through 5 major channels:
- iPhone – 52% of Revenue
- Mac – 10% of Revenue
- iPad – 7% of Revenue
- Wearables, Home, and Accessories – 11% of Revenue – This channel includes the Apple Watch, AirPod, HomePod, Beats headphones, and AirTag.
- Services – 20% of Revenue – This channel includes Apple Card, Apple Pay, AppleCare, Apple Arcade, advertising, cloud services, and the app store.
Between 1988 and 2023, Apple made over 125 acquisitions. You can review the full list here. This supports the “buy before build” philosophy that most large companies follow. In other words, it’s much wiser to buy a product or another company than to try to build it on your own. This reduces time-to-market and adds an additional stream of revenue or cost savings to the company on day one.
Here are some of the companies Apple acquired.
- NeXT (1997) – Hardware and software which led to the Mac OS
- Beats (2014) – Headphones
- Dryft (2014) – On-screen keyboard for iPhones
- Texture (2018) – Digital magazine which turned into Apple News+
- Shazam (2018) – Music recognition software
- NextVR (2020) – Virtual reality events
- Credit Kudos (2022) – FinTech platform that turned into Apple Card
Step 4: Apple News
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This article from reuters.com states that Apple will contract with Chinese manufacturer Luxshare Precision Industry to develop the long-awaited AIR device, Nikkei Asia. The headset is targeted to retail at $3,000 and will compete with Meta Platforms Quest Pro which retails at $1,500.
This article from counterpointresearch.com lists the top-selling smartphones in 2022 in 8 different countries. Here are highlights from three countries.
USA
- Apple iPhone 14 Pro Max – 16%
- Apple iPhone 14 Pro – 10%
- Apple iPhone 14 – 7%
- Samsung Galaxy A13 – 5%
- Apple iPhone 13 – 4%
China
- Apple iPhone 14 Pro Max – 6%
- Apple iPhone 14 Pro – 6%
- Apple iPhone 13 – 5%
- Apple iPhone 14 – 4%
- Vivo Y33s 5G – 3%
France
- Apple iPhone 14 – 10%
- Apple iPhone 14 Pro – 9%
- Apple iPhone 14 Pro Max – 7%
- Apple iPhone 13 – 5%
- Apple iPhone Pro Max – 5%
The other countries on this list include UK, India, Germany, South Korea, and Japan. The iPhone is at the top of this list for each.
This article from gurufocus.com states that Apple missed on EPS and revenue in the most recent quarterly report. EPS expected was $1.95 and reported was $1.88. Revenue expected was $121.65B and reported was $117.15B. Here are the reasons why Apple missed on both key metrics in the latest earnings report.
- One of Apple’s major iPhone factories in Zhengzhou, China was operating at a limited capacity in 2022 due to the residual effects of Covid 19. Apple’s leadership has stated that production has returned to comfortable levels in 2023.
- PC demand is declining which is impacting all desktop and laptop manufacturers including Apple. Despite the decline, the new internally manufactured M1 and M2 chips are gaining a lot of attention. As Marques Brownless states in this M1 Max MacBook review, the M1 chip is “next level”. The M2 chip is just as impressive, if not better.
This article from investorplace.com lists 7 dividend-paying tech stocks to hold for the long-term. Those stocks include IBM, Cisco, Texas Instruments, Microsoft, Apple, Oracle, and Qualcomm.
For the latest news on this stock, please login to Tykr.
Step 5: Apple Competition
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
Apple (AAPL)
- Summary: On Sale
- Score: 61/100
- MOS: 75%
- Share Price: $148
- Fair Value: $398
- Revenue: $394B
Microsoft (MSFT)
- Summary: Watch
- Score: 78/100
- MOS: 41%
- Share Price: $248
- Fair Value: $391
- Revenue: $198B
Amazon (AMZN)
- Summary: Overpriced
- Score: 39/100
- MOS: 0%
- Share Price: $95
- Fair Value: $100
- Revenue: $513B
Dell Technologies (DELL)
- Summary: Overpriced
- Score: 39/100
- MOS: 0%
- Share Price: $41
- Fair Value: $43
- Revenue: $101B
Samsung Electronics (005935)
- Summary: Watch
- Score: 56/100
- MOS: 0%
- Share Price: ₩55,100 ($43)
- Fair Value: ₩57,143 ($44)
- Revenue: ₩301T ($231B)
International Business Machines (IBM)
- Summary: Overpriced
- Score: 45/100
- MOS: 0%
- Share Price: $130
- Fair Value: $132
- Revenue: $60B
Ranking based on Score
- Microsoft – 78/100
- Apple – 61/100
- Samsung – 56/100
- IBM – 45/100
- Amazon – 39/100
- Dell – 39/100
Step 6: Apple 4Ms
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
✅ MOS: A score of 61/100 shows the financials are strong and the MOS of 75% shows a lot of upside potential. Although EPS and revenue missed expectations in the last earnings report, the overall financials are still impressive.
✅ Meaning: Apple’s 5 revenue channels have proven this company can grow in good times and bad. Some of the key highlights include the iPhone is by far the most popular smartphone in the world, the new M1 and M2 chips are taking Mac computers to another level, and the Services continues to generate substantial revenue and profits without having to manufacture a physical product.
✅ Moat: Apple has a wide moat mainly because of the iPhone and its Services. Regarding the iPhone, the biggest competitor is Samsung but as the article from counterpointresearch.com highlights, the iPhone is still the top-selling smartphone around the world. Regarding its Services, they integrate with most of the products, creating a unique ecosystem where Apple can easily cross-sell and up-sell other products to current customers. A great business model is when companies can scale ARPU (Average Revenue Per User). Apple’s business model maturity allows it to do exactly that.
✅ Management: Tim Cook has served as CEO since 2011. He started his career at IBM where he worked his way up to Director of North American Fulfillment. Thereafter he went to Compaq where he served as VP of Corporate Materials. In 1998 Steve Jobs recruited him to join Apple where he served as Senior VP of Worldwide Operations and eventually worked his way up to COO until 2011 when he took over as CEO. The Glassdoor rating is 4.2 and the CEO approval is 90%. Both ratings are excellent. Some say one of Steve Jobs’s greatest accomplishments was mentoring Cook. Cook has stated that some of the things he learned most from Jobs include:
- Focus – You only can do so many things really well which means you have to say NO to a lot of other things.
- Relentless pursuit of excellence – This has become a corporate value at Apple.
- Life is fragile – We’re not guaranteed tomorrow, so give it all you got.
If you’re interested, you may complete your own 4M checklist on this stock or other stocks by logging into Tykr.
Step 7: Is Apple (AAPL) stock a good buy?
All 4Ms look great! Apple has proven to be a great investment over the last decade. The total returns are over 950% and the annualized returns are about 60%. I will continue buying more shares of Apple over the coming years.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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