Share price: $145.86 P/E: 17.3
Apple reported revenue of $52.9bn for the March quarter, reflecting a year-on-year increase of 4.5%. Earnings per diluted share rose 10.5% to $2.10, it said. CEO Tim Cook said the “strong quarter” saw continued robust demand for the iPhone 7 Plus. Some investors have voiced concerns that all it does is improve its iPhone, iPad and Mac; that there is no significant innovation on the horizon.
Apple is a very secretive company and does not lay out its plans, says Talpert. But there are a lot of things going on behind the scenes. “It has 300 engineers working on virtual reality and augmented reality; the resources it has committed to artificial intelligence are massive.
“It generates huge amounts of cash and a huge amount is going to R&D,” says Talpert, adding that mobile phones are the enablers to the growth in augmented reality. A lot of Apple’s product innovation has been around the camera, which is also very important as an enabler of new technologies.
Some investors have voiced concerns that all it does is improve its iPhone, iPad and Mac; that there is no significant innovation on the horizon.
“Apple has not necessarily always been the first, but when it brings something out it is often the leader. It makes sure it gets it right and brings out products with fewer problems than others.
“Apple has a base of 1bn phones – that is a powerful metric in itself. Add things like the app store and subscription services and Apple has built a big ‘ecosystem’. People who have bought into an ecosystem are less likely to switch to another brand.”
Ashton adds: “Apple is to an extent being treated as an ex-growth device business – its valuation is still comparatively low at a forward 14.5 P/E, with 20% of the market cap in cash, so the valuation on the operating business is even lower.
“While the iPhone dominates sales (over 60%) and has stagnated in recent years, we believe a fresh replacement cycle should drive renewed sales growth. What is also not sufficiently appreciated, in our view, is the potential for the Apple ecosystem to account for a much larger share of profits in the future via the Services division, which should drive a re-rating given the higher annuity nature of profits.”
Tim Cook CEO of Apple