Apple's stock$Apple(AAPL)$
Up to now, Apple's total market value has barely been at $2 trillion, and the TTM price-earnings ratio is about 20 times. Judging from Apple's historical valuation performance, this valuation is not cheap. Because around 2016, Apple's valuation was only about 10 times, and Apple's valuation score is still near 70%. However, compared with nearly 40 times the valuation in the fourth quarter of 2020, Apple's valuation has been given a relatively large discount at present. Now Apple is not cheap or expensive. It can only be said to be reasonable.
Apple's stock price fell sharply, not only the pressure of the Federal Reserve to restructure the U.S. stock valuation system caused by a sharp increase in interest rates, but also a sharp decline in Tesla's valuation to lower the valuation level of the entire technology stock sector.
In the past, Tesla,$Tesla Motors(TSLA)$
In addition to the factors of interest rate increase pressure and valuation squeeze, the sharp decline in Apple's stock price is also related to its fundamentals and profitability.
Recently, Apple has frequently spread rumors of cutting orders, which are related to the decline in market demand. The decline in market demand is actually related to many factors, including uncertain expectations of the global economy, the decline in household income expectations, the saturation of the mobile phone market, and the lack of popular innovative products.
Even if Apple may face pressure to cut orders, Apple still has the right to speak in the supply chain environment. Behind the rumors in the market that Apple cut orders, the stock prices of a number of fruit chain companies have fallen sharply. The increase or decrease of Apple sales directly affects the development prospects of the upstream and downstream industrial chain.
Is Apple with a valuation of 20 times cheaper? If it is priced according to the valuation of growth stocks, Apple needs to have a profit growth capacity of 10% to 20% to support a valuation level of more than 20 times. However, judging from Apple's latest revenue and net profit growth rate, there is only a number of growth. Whether from the perspective of revenue or net profit, Apple can be called a growth stock.
If the price is set according to the value stock, in addition to the continued stability of fundamentals, it will also test Apple's cash dividend ability and the strength of share repurchase and cancellation.
Generally speaking, with their fast profit growth ability, the market tends to give high valuation premium space. However, the dividend ability of growth stocks is not strong, and it is likely that listed companies are willing to spend more money on research and development and expand production. At this stage, it is not the time to improve the return rate of shareholders. Therefore, the market often brings dividends to shareholders through rising asset prices, rather than cash dividends.
On the contrary, the profit growth rate of value stocks slows down, but in order to maintain a high return on net assets and ensure a certain return on investment expectations, listed companies often greatly increase the strength of cash dividends and share repurchase and cancellation to maintain the investment attractiveness of listed companies.
In the cash dividend and share repurchase and cancellation link, Apple has done a good job among many listed companies. Buffett, who has held shares for many years, has also clearly benefited from Apple's cash dividends and repurchase and cancellation strategy. According to statistics, the cumulative repurchase amount in the fourth quarter of 2022 was $89.4 billion.
When Apple's market value fell below $2 trillion, investment master Duan Yongping said that he had replaced some Berk Hill B-shares and Tencent to Apple. In Duan Yongping's view, Apple's investment is currently more cost-effective than the above two listed companies, which may be one of the reasons why he invests in stock exchange.
As one of the best listed companies in the world, Apple has been in the position of the highest market capitalization for a long time, and its core competitiveness and moat are still strong.
The driving force of improving Apple's valuation in the future is, on the one hand, the transformation of Apple's valuation pricing system from a hardware company to a software company, and Apple's valuation will naturally get a certain premium. In terms of specific business, Apple's proportion of service business has increased from less than 10% in 2016 to nearly 20%. The diversification of Apple products and the transformation of business from hard to soft has become one of the reasons for the gradual improvement of Apple's valuation. On the other hand, Apple's cash dividends and share repurchase continue to improve, and the return ability of shareholders continues to be confirmed, which is also an important reflection of maintaining a high return on net assets and maintaining the return ability of shareholders.
In the analysis of Apple's historical valuation level, 15 to 20 times the valuation is the valuation hub level of the past 10 years. In other words, as Apple's valuation falls below 20 times, it means that Apple has begun to enter the range of reasonable valuation. From the perspective of investment cost-effectiveness, within the reasonable valuation range, the cheaper the valuation, the higher the investment cost-effectiveness.
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