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Apple: Strong Competitive Position, Growth Outlook Slowing

I am neutral on Apple (AAPL) as the company’s strong competitive position in its industry, robust profitability, and general support from Wall Street analysts is offset by its fairly high valuation multiples and slowing growth outlook.

Apple is an American-based multinational technology corporation specializing in consumer electronics, including computer software and online technology services. (See Analysts’ Top Stocks on TipRanks)


Apple is the biggest technology company in the world, based on revenue totaling $274.3 billion in 2020.

The company is the fourth-largest provider of personal computers by unit sales and the fourth-largest manufacturer of smartphones. It is also one of the largest companies in the world by virtually every metric.

Recent Results

Apple reported revenue of $83.36 billion in its fourth quarter of fiscal 2021. The quarter ended September 25 saw revenue up by 29% from the same quarter of the previous year; however, the company missed the expected earnings of $84.68 billion. Overall earnings were 41.24 per diluted share, which is in line with estimates.

The iPhone division saw revenue of $38.87 billion, which was less than the $41.60 billion expected. Mac revenue was reported at $9.18 billion, lower than the expected number of $9.30 billion. iPad revenue was $8.25 billion, which was considerably higher than the $7.16 billion expected.

The company also reported Service revenue of $18.28 billion that also beat the $17.57 billion estimate. The Wearable segment revenue was $8.79 billion versus expectations of $9.27 billion. Although the company missed analysts’ expectations on many divisions, overall quarterly revenue was up 29% year-over-year.

The company is well on its way to meeting its 2030 goal of becoming a carbon-neutral corporation and advancing its mission to create an equitable future.

The company’s fourth quarter showed strong growth in double digits, during which it set new revenue records in its product categories and geographic segments. Apple reported it was able to return $24 billion in total dividends to its shareholders as it continues to make progress towards reaching a net cash neutral position.

The company’s board of directors declared a cash dividend of $0.22 per common stock share, which was paid out on November 11.

Valuation Metrics

Apple’s stock looks richly valued at the moment as its EV/EBITDA ratio is currently 21.7x compared to its five-year average of 13.3x, and its P/E ratio is 28.4x compared to its five-year average of 20x.

While the multiples are high, the growth prospects are expected to slow moving forward as EBITDA is expected to decline by 0.2% in 2022 and grow by 4.5% in 2023, while normalized earnings per share are expected to grow by just 1.4% in 2022 and 7.2% in 2023.

Wall Street’s Take

From Wall Street analysts, Apple earns a Moderate Buy analyst consensus based on 21 Buy ratings, six Hold ratings, and one Sell rating in the past three months. Additionally, the average Apple price target of $166.92 puts the upside potential at 3.1%.

Summary and Conclusions

Apple has an extremely valuable brand and generates very strong profitability. The company’s moat is also clearly strong as it enjoys a very sticky customer base, and its balance sheet is also stellar.

That said, upside in the shares from here appears limited as growth is expected to grow substantially over the next few years even as valuation multiples are well above historical averages.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >