00:00 With a $2.7 trillion market cap, Apple is most likely the largest company in the world
00:05 and the stock is up more than 60,000% since its IPO back in the 1980s.
00:10 The company also has $25 billion in cash, $141 billion of short term investments and $97 billion
00:17 of long term debt which means the enterprise value is $2.63 trillion. Revenue over the last 12 months
00:23 equals $385 billion with $94 billion of net income and $98 billion of free cash flow. So based on
00:30 recent figures, the company is valued at 6.8 times revenue, 29 times earnings and 27 times
00:36 free cash flow. That P/E ratio has come down from its peak but it's still a bit higher than the
00:41 historical average. Prior to 2020, Apple's P/E ratio typically sat in the 10x to 20x range.
00:48 Looking at recent trends, you can see a company with modest growth but improving margins.
00:53 Despite a year over year drop of 2%, revenue has grown roughly 68% since 2017. Meanwhile,
00:59 operating profit has increased 83% and net income has grown 95%.
01:04 To understand this margin expansion, we can have a look at Apple's changing revenue mix.
01:09 In 2017, Apple revenue was 87% derived from products like iPhones, iPads etc and 13% was
01:16 derived from services like advertising and content. Today, products have shrunk to 79%
01:22 of total revenue and services has grown to 21% of the total. Very simply, services are higher
01:27 margins so Apple's growth in this area contributes to a much leaner business.
01:32 Apple has also proven an ability to raise prices. Warren Buffett recently said that customers would
01:37 rather give up their second car than give up their iPhone and Apple stock now represents
01:42 almost 50% of Berkshire's public portfolio. Let's assume a hypothetical scenario where
01:48 Apple maintains its historical earnings growth of 10% for the foreseeable future.
01:52 That would put net income at $245 billion in 10 years time and a 25 times multiple
01:58 puts the valuation at $6.1 trillion. Include dividends and the investment return works out
02:04 to around 9.3% a year. As usual, a key risk to owning Apple is whether the next iPhone is good
02:10 enough to sustain sales and whether the company can continue to navigate trade relations with
02:15 Chinese suppliers. That said, Apple is yet to make much of a splash in the realm of AI and
02:21 a development on that front could give the stock a short term boost. Overall, Apple may be the best
02:27 business in the world but the stock looks fairly priced and I give it a neutral rating. It's best
02:32 to get this stock on a dip. But these are my personal opinions not financial advice and I do
02:37 own some shares in Apple.
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