Overnight, Apple Inc (NASDAQ: AAPL) shares jumped nearly 6%.

It’s now a $US988 billion company, according to Google Finance. That’s around 10 times the size of Commonwealth Bank of Australia.

Put another way, Apple’s total value rose by almost $US50 billion in one day.

(For the record, I own Apple shares. It was one of the first three investment ideas I issued to Rask Invest members.)

At $US988 billion, you’re probably asking: “Apple is so big that it can’t possibly keep growing, right?”

2014: Apple Is A Lemon

In 2014, one of the world’s best investors, Carl Icahn, said Apple was worth $200 per share.

Some investors jumped all over his forecast.

The Motley Fool said, “Carl Icahn’s $200 Value for Apple Stock Just Doesn’t Make Sense”.

A prominent venture capitalist wrote a detailed article for Forbes giving 6 reasons why “Carl Icahn Overvalues Apple By $700 Billion”.

Here’s what he said:
1. “iPhone does not trump Android”
2. “Apple watch will disappoint”
3. “iPads Will Have Limited Traction In The Business Market” 
4. “Apple HDTV Will Remain a Fanboy Fever Dream”
5. “Apple Pay Will Bounce”
6. “Icahn Exaggerates Apple’s Earnings Growth and Value”

The analyst proved to be wrong on just about all counts.

2015: Apple iPhone Is Doomed

In June 2015, Huffington Post, one of the world’s leading news sites, wrote:

“Wall Street analysts were disappointed and investors seem to be worried that sales could eventually slow down as tweaks to future models are more evolutionary than revolutionary.”

At the time, Apple shares were trading for $126. They’re now over $200.

But if that wasn’t bad enough for the experts, Apple sold 231 MILLION iPhones in 2015 and another 212 MILLION a year later. They sold 41 million iPhones in the last 3 months.

2016: Apple Is A Value Trap

In 2016, MarketWatch wrote:

“Apple Inc.’s share price fell solidly below $100 on Thursday, a territory not seen since October 2014, fueling a debate on Wall Street over whether the stock is overvalued, amid ongoing expectations of slower growth in fiscal 2016.”

“So far, FY 2016 isn’t expected to be a great one for Apple.”

Throughout 2016, Apple’s share price rose from a low of around $93 to $117 – a 25% increase.

2017: Apple is More Overvalued 

ValueWalk wrote an article, “Here’s Why Apple Inc Remains Overvalued”.

Apple shares ended 2017 priced at around $170.

Yesterday: Apple Beats Analyst Estimates

As I mentioned above, Apple beat analysts’ iPhone and sales estimates for the June quarter. Its shares rose nearly 6%. Headlines said, “Apple beats estimates”.

4 Reasons I Own Apple Shares

An investor who has read my free investing eBook (PDF) will know there are 4 things I look for in the companies I buy and hold for the long run:

1. An understandable business. Apple is perhaps too easy to understand. Nevertheless, I think the company sits well within my circle of competence.

2. Good management with skin in the game. Apple CEO Tim Cook has proven to be a competent leader and he has an enormous financial interest in seeing Apple succeed.

3. The business must have a moat or competitive advantage. First, it was Mac that blew consumers away. Then iPods. Then, iPhones. iPads. Next, it could be services like Apple Pay, or connected homes using devices like the HomePod.

The simple fact is, Apple’s marketing gets users in the door, its unique iOS software and convenient services keep them buying more.

4. Valuation. Based on my discounted cash flow, I wouldn’t call Apple shares a bargain or drastically overvalued.

I don’t expect Apple to grow like the small tech companies in the Rask Invest model portfolio, and it could be a complete flop from here. I’m not making any guarantees.

But even relative to its competitors and the market more broadly, Apple shares are valued on a mid-to-high teens price-earnings (P/E) ratio. If the company can continue to grow modestly I think that will prove to be cheap. For what it’s worth, the ratio is better again if I subtract Apple’s $200+ billion in cash.

Therefore, despite the elusive $1 trillion valuation being just a rounding error away, I’m happy to pocket Apple’s dividend and own a company which controls 1.3 billion devices that are designed to keep their users dependent on the ecosystem and paying more and more each year.

Cheers to our financial futures!

Owen Raszkiewicz
Lead Adviser of Rask Invest

 

Disclosure: At the time of publishing, Owen Raszkiewicz owns shares of Apple Inc. 

Disclaimer: This article contains general information only and should not be relied upon. It does not take into account your needs, goals or objectives, so you should speak to a trusted financial adviser before you rely upon the information. Past performance is no guarantee of future returns. Please read The Rask Group’s full disclaimer and financial services guide (FSG) on the Rask Finance website. 

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