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Company name Apple Inc.
Stock ticker AAPL
Live stock price [stckqut]AAPL[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $196.27
Target stock price (averages with growth) $183.45
Target stock price (averages with no growth) $83.24
Target stock price (manual assumptions) $194.89

The following company description is from Google Finance: http://www.google.com/finance?q=aapl

Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in Apple Inc.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor. You can review the best companies that I have found (and I probably invest my own money in most of these companies) in my Watch List.

How was this analysis of Apple Inc. calculated?

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
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In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

  • Stock price at the time of the calculation: $127.08
  • Growth: 0.2
  • Current EPS (TTM): $7.42
  • P/E: 17
  • Future EPS Calc: $18.46
  • Future Stock Price Calc: $313.87
  • Target stock price: $194.89

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I hope that this makes you a Confident Investor.

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I am not a big fan of Radio Shack [stckqut]RSHCQ[/stckqut] and have never invested in them in all my years as a profitable but personal investor. I saw this ad recently on another site and think it is a great example of how their business model struggled to evolve.

Every product on this Radio Shack advertisement has been replaced by today’s smartphones. Let’s take a quick look:

  • Stereo
  • Alarm clock
  • Headphones
  • Calculator
  • Intel 286 based computer (today’s iPhone’s are far more powerful)
  • Mobile cellular telephone (evidently this is the main reason for having a smartphone but don’t tell that to a teenager)
  • CD player (Okay, this one isn’t a direct replacement but instead an evolution of the music industry)
  • Radar detector (not on a standard smartphone but there are apps that will alert you to the presence of a police car on the side of the road)
  • Desktop scanner (via an app or the Internet)
  • CB (citizen’s band) radio (not directly but messaging has evolved)
  • Answering machine
  • Phone (this one is for a home, but many people are simply dropping their ‘home line’)
  • Tape recorder
  • Video recorder
  • Speakers

Obviously, Radio Shack was not selling a lot of these products recently, and the company evolved its business model. But did it evolve it quickly enough?

I am often asked why I don’t recommend young and hot companies, and I never suggest that a Confident Investor should invest in an IPO. It is simple; I want my investments to be in companies that have been around long enough to have survived multiple levels of competition. I want the company to be successful in the majority of a decade in order to prove that the management knows how to adapt to new technologies and new competition.

Radio Shack did fine for many years. However, they fell in love with their business model. They fell in love with the small store with smart people behind the counter. They fell in love with gadgets. The problem is that they loved their business model so much they didn’t throw it away when it was obvious that the model was hurting the company. They didn’t understand Amazon [stckqut]AMZN[/stckqut] and, ultimately, Amazon destroyed them.

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