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|Company||Apple (Nasdaq: AAPL )|
|Stock Price At Underperform Recommendation:||$391.68|
|Star Rating (out of 5)||***|
|Market Cap||$354 billion|
|Industry Peers||Dell (Nasdaq: DELL )
Cisco (Nasdaq: CSCO )
Hewlett-Packard (NYSE: HPQ )
Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS.
History has proven countless times that the hottest stock in the industry under-performs in the long run.
Before I continue I want to make it clear that based on a fundamental analysis, Apple, looks outstanding. Heck, they even make a pretty good product.
Apples compounded annual growth rate in revenues over the past 5 and 10 years has been around 35 percent. This is exceptional no matter how you look at it.
How did this company manage to grow this much every year? The answer to this question is simple; by selling products, while very well made, that are extremely overpriced. I'm still surprised that it has gone on this long. Apple products are most certainly a fad, however, a fad that has lasted longer than most.
How much can investors expect the company to grow in the future? The answer to this question is also very simple. You don't have to be a financial genius to realize that no company can grow 35 percent every year forever. Even 3 percent growth cannot be sustained forever. So how much growth can we expect? A lot less than 35 percent and possibly negative growth as people switch to the next hot product.
Valuing this stock based on its past earnings could be very dangerous because future earnings and earnings growth will most certainly decline. In the long run I am positive that earnings growth will be negative. There will always be new companies emerging that make products better and cheaper.
Honestly, I just don't understand why people are willing to pay 2, 3 or even 4 times what something is worth just because it's made by Apple. Again, as I mentioned before, Apple products are very well made. However, I know other things that are also well made and people are not paying outrages sums for it. I have also noticed over the last several years that the ingenuity that made this company what it is today has disappeared. The company no longer makes new innovative products. I mean just look at the iPhone, they keep coming out with a new one every year, however, if you think about it they are all pretty much the same. Eventually people will get bored of this same old thing and move on.
Apple has had a great run, but now it's time for this company to fall and another one to take its place.
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