Has Apple finally become a short?
Growth stalled, P/E of 30 times, negligible dividend
Apple (AAPL) is one of the greatest growth stories of all time with billions made for investors and those foolish enough to short it (like me, I lost about US$300,000 on my Apple short a few years ago) taking a bath in the belief that Android devices would decimate Apple’s markets share. Android devices did take share but Apple found its customer base willing to pay high prices for its latest device and upgrade almost every year or two, fueling the profit growth the company turned in. Year after year Apple’s innovative new products and loyal customer base saw the company improve margins with higher device prices while maintaining its approximately 15% to 20% unit market share of the global smart device market.
But growth has stalled since 2022, China no longer welcomes Apple and no one is rushing out to buy the iPhone 15. You can tell a product is tired when the best management can do is add a digit to its moniker. By the time we have iPhone 35 I will be approaching 100 years of age and I doubt the company will turn in double digit growth in perpetuity.
Does a thirty multiple discount some future product innovation - another “one more thing” event such as those Steve Jobs used to preside over? Or is the enthusiasm a bit overdone? Revenue has fallen 3% over the past year, the market seems overvalued in general, and Apple stock in particular. Today’s rare downgrade of the stock by Barclay’s may mark a turning point.
As with every new innovation since Christ was Christened, markets for the new devices mature and competition takes a toll on the innovator. After 15 years, the smartphone market which kicked off with the iPhone launch in 2007 shows signs of age and is in a incipient decline, it seems.
Samsung has the largest unit share but the iPhone commands the largest dollar and profit share as it has for quite some time. But the Q4 2022 shipments of 70 million iPhones was a fall of 11.5 million units from the same period in 2021. Counterpoint Research sees growth a paltry 3% in 2024, and that may be optimistic.
Apple will keep making billions and likely retain its position as the world’s most valuable company for a few years to come, but the odds of a decline in the AAPL share price are growing. A profitable company growing at 3% and paying a dividend equal to 0.5% does not warrant a thirty something price to earnings multiple in any market. At a 20 times multiple, still reasonably high for a company growing more or less in line with the world economy, Apple shares would trade in the US$120 per share range, a decline of 33% from the current price (more or less).
Apple puts at strike prices from US$100 to US$185 per share are actively trading and turned in double digit gains today. Speculators smell blood.
You would think I would have learned my lesson when I lost a bundle on my Apple short only a few years ago, and I have stayed away from the company’s securities for several years in awe of its resilience, the elegance of its products, and its growing services business. But in my opinion, the bloom is now off the rose and with some trepidation I will either short the stock or buy some puts at the money with a January 2026 expiration for what seems to be a premium in the 10% range and will make a reasonable profit if the stock does in fact fall to the US$120 range over the next couple of years.
Not for the faint of heart.
Apple hasn’t had a new product for a long time.
They make small improvements but I still find a lot of annoying little glitches with my iPhone that could be easily fixed if they weren’t hiring based on DEI instead of merit ... notice how Elon fired 70% of the
latte drinking staff at Twitter and he’s closer to making a profit than ever ,
even with WOKE Disney advertising deserting X
Elon says Tesla is really becoming a robot company. And that his Tesla robot company is going to be worth more than Apple and Aramco combined in five years.
Business is cut throat , Apple might be going the way of GE
I still use my iPhone 6s and feel no urge to upgrade. Indeed, I sometimes wonder if I'd be better off with a "dumb phone". Happy New Year and thanks for all your posts.