To The Moon

$Apple(AAPL)$ , with a market value close to $3.6 trillion, is the largest publicly traded company in the world. It showcases the power of creative thinking and its application in technology. Long-term growth for Apple seems likely, but that doesn't necessarily mean it's a good time to buy the stock right now.

Services: The Hidden Gem

On one hand, there's significant optimism about the potential of AI and its integration into Apple's products and services. On the other hand, the company is facing stiff competition globally, especially from other smartphone makers.

While Apple’s stock may be considered expensive, analysts suggest that holding onto it is better than selling, given its high quality and low debt. Recently, the stock has dipped by 1% even as the $.SPX(.SPX)$ rose 3.1%.

The gap in performance isn’t too significant, particularly over the last three months. However, this could change substantially in the coming days. On October 31, after market close, Apple will release its earnings for the fourth quarter of fiscal year 2024. Analysts expect both revenue and profits to grow. If the results exceed expectations, the stock could recover and potentially outperform the broader market.

What’s most intriguing about Apple isn’t just its products but its services. This includes ad revenue from its platforms, income from AppleCare, cloud services, digital content sales, and payment services like Apple Card and Apple Pay. The recurring revenue potential and high profit margins from these services are particularly appealing.

Challenges Ahead

That said, not everything is going smoothly. Apple has seen some weakness in wearables, home products, and accessories. Most concerning is the reported decline in iPhone revenue, Apple's most critical product.

In the U.S., Apple dominates the smartphone operating system market, but its share drops significantly outside the country. For 2023, its global market share was about 29%, showing growth over the past five years. However, competition in key markets is intensifying.

Unfortunately, the management hasn't provided product revenue data broken down by region. While the company reported year-over-year growth in all regions for Q3 2024, it continues to struggle in Greater China.

Opportunities in Growth Markets

Despite these setbacks, there are still significant growth opportunities for Apple, particularly in India, where population expansion is expected to continue. Other regions, including the U.S., are also projected to grow.

With increasing revenues, profits are on the rise as well. Overall, income, profits, and cash flow are improving. Thus, even with some weaknesses in one of its largest markets, Apple performs well enough elsewhere to offset those challenges.

From an operational standpoint, analysts confidently predict that Apple will be larger in ten years than it is today. If we annualize its financial performance so far this year, the projected net profit for 2024 could reach $103.49 billion.

In recent years, Apple has invested heavily in stock buybacks. From early 2021 to the end of Q3 this year, the company spent $322.79 billion on repurchasing shares, reducing its total share count by about 9%. Given the company's valuation, analysts would prefer that this capital be directed towards growth initiatives. Remarkably, Apple has achieved this without increasing its overall debt, with net debt declining from $62.08 billion in 2021 to $39.5 billion in the latest quarter.

Expectations for Earnings

Current forecasts estimate sales at $94.21 billion for the upcoming quarter. If accurate, this would mark a 5.3% increase from last year's $89.5 billion. Earnings per share are also expected to rise, from $1.46 to $1.59. This translates to a net profit increase from $22.96 billion to $24.4 billion.

In summary, Apple is one of the best companies in the world. While its growth may not be rapid, it remains robust. The company generates substantial cash flow and retains significant long-term growth potential.