➡️ 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 complete a 4M checklist. The 4Ms include the MOS (Margin of Safety), Meaning, Moat, and Management.
Table of Contents
➡️ 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 problems. 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.
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this step for us automatically. A stock is either classified On Sale (Potential Buy), Watch (Hold), or Overpriced (Potential Sell). 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. To determine if a stock is a definitive “Buy” or “Sell”, it’s wise to complete a 4M checklist.
- Summary: On Sale
- Score: 61/100
- MOS: 75%
- Share Price: $188
- Fair Value: $398
- Revenue: $394B
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
➡️ 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: $188
- Fair Value: $398
- Revenue: $394B
Top 5 Competitors of Apple:
Microsoft (MSFT)
- Summary: Watch
- Score: 78/100
- MOS: 0%
- Share Price: $334
- Fair Value: $265
- Revenue: $198B
Alphabet (GOOGL)
- Summary: Watch
- Score: 44/100
- MOS: 61%
- Share Price: $118
- Fair Value: $194
- Revenue: $282B
Samsung
- Summary: Watch
- Score: 61/100
- MOS: 0%
- Share Price: ₩72,600 ($54 USD)
- Fair Value: ₩81,235 ($62 USD)
- Revenue: ₩302T ($230B USD)
HP (HPQ)
- Summary: Overpriced
- Score: 28/100
- MOS: 0%
- Share Price: $29
- Fair Value: $30
- Revenue: $62B
Dell (DELL)
- Summary: Overpriced
- Score: 39/100
- MOS: 0%
- Share Price: $51
- Fair Value: $43
- Revenue: $102B
➡️ Goal: It’s important to understand who the CEO is, what they have accomplished in the past, and how they have helped this company grow. As investors, we should invest in CEOs with humility and integrity. Good leaders typically have stronger cultures, less turnover, and better returns in the stock market.
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. 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.
Glassdoor Company Rating: 4.2
Glassdoor CEO Approval: 90%
➡️ 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 video from Yahoo Finance stated that retail investors poured $1.5B into the stock market in June of 2023. Some of the most popular stocks included Tesla, Apple, and Nvidia.
This article from fool.com lists 3 tech stocks to buy and hold for the long term. Those three stocks include Apple, Microsoft, and CrowdStrike. Apple is listed because of the continued popularity of the iPhone and the impressive growth of its services revenue. In 2019, the service revenue was about $46B and in 2022, its services revenue climbed to $78B.
This article from cnbc.com states that Apple isn’t leaning into the AI buzzword lingo like other companies. They are adding AI but they are letting the features do the talking. As stated “Unlike its rivals, who are building bigger models with server farms, supercomputers, and terabytes of data, Apple wants AI models on its devices. The new autocorrect feature is particularly impressive because it’s running on the iPhone, while models like ChatGPT require hundreds of expensive GPUs working in tandem.”
This article from forbes.com lists the top 10 best-selling smartphones in 2022. Apple is listed 8 times and Samsung is listed 2 times.
- Apple iPhone 13
- Apple iPhone 13 Pro Max
- Apple iPhone 14 Pro Max
- Samsung Galaxy A13
- Apple iPhone 13 Pro
- Apple iPhone 12
- Apple iPhone 14
- Apple iPhone 14 Pro
- Apple iPhone SE 2022
- Samsung Galaxy A03
This article from reinisfischer.com lists the top 14 best-selling laptops in December of 2022. Due to the powerful M1 and M2 chips, Apple is #1 with the MacBook Air and #10 with the MacBook Pro.
- Apple MacBook Air
- Acer Aspire 5 A515-56
- ASUS VivoBook
- Acer Aspire 5 A515-45
- MSI GV15
- Lenovo IdeaPad Flex
- Lenovo IdeaPad 1i
- Lenovo IdeaPad Gaming 3
- Lenovo 2022 Newest Ideapad 3 Laptop
- Apple MacBook Pro
- Acer Aspire 5 A515-46
- HP Chromebook
- ASUS TUF Dash 15
- MSI Pulse
➡️ 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.
✅ 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 still has 8 of the top 10 best-selling smartphones on the market. And it’s impressive to see the MacBook Air as the top-selling laptop. It’s also important to highlight the increasing profitability of Services revenue.
✅ Management: Tim Cook is consistent which is exactly what we want to see from a CEO. There are no surprises, especially negative surprises. He continues to empower his people to create top-quality products and services.
This is a company that continues to impress me. I will continue buying more shares of Apple.
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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.
If you found this stock review interesting, you may also like this review on Microsoft.