No one likes being late to a party, especially one where the first ones there get the best party favors. The Apple (AAPL) party started long ago, but does that mean it’s too late to join the festivities?
For the past decade, Apple’s stock has trounced those of longtime software archenemy Microsoft (MSFT), traditional PC hardware vendors like Dell (DELL) and Hewlett-Packard (HPQ), and smartphone players like Research In Motion (RIMM).
Apple grew large enough to briefly claim the title of most valuable company in the world by market cap, although Apple and ExxonMobil (XOM) pass the crown back and forth. Even at its size, top-line revenue grew by 66% last fiscal year, while bottom-line profit jumped an astonishing 85%. It’s mind-boggling that one of the already-biggest companies in the world is still putting up growth rates like that.
Am I Too Late?
As great as the past 10 years have been, how do the next 10 years look? Apple has lost its iconic co-founder, and iPhone growth has made iOS Apple’s dominant operating system, overshadowing Mac computers and OS X.
Does Cupertino have more tricks up its iSleeve to maintain its growth momentum? Or is Apple’s recent surprise earnings miss a sign that the company’s best days are behind it? More importantly, is the stock still a buy at current prices?
Even More iPhones
Last year’s iPhone revenue put up an 87% jump to $47.1 billion, yet CEO Tim Cook pegged Apple’s worldwide mobile phone market share at just 5%, leaving plenty of room for future growth in Apple’s most important product category.
Last quarter’s “miss” was largely due to the fact that the media had sensationalized the pending “iPhone 5,” causing buyers to delay their purchases. And purchase they did, as 4 million iPhone 4S units were sold over launch weekend. Average selling prices have been rising for years, most recently $650, and the 4S promises to continue that trend.
Even More iPads
The iPad is incredibly young in contrast, having been around for roughly a year and half. The tablet revolution is real this time around, with the iPad leading the way. It shows the same promising signs the iPhone did a couple years ago, with last year’s iPad revenue soaring 311% to $20.4 billion.
Even as the tablet world is being stormed by a slew of Google (GOOG) Android competitors, including worthy opponents like Amazon.com (AMZN), the whole pie is growing so quickly and Apple has little to worry about with the iPad counting as three of every four tablets currently sold.
Businesses have long been dominated by Windows, which means there’s plenty of market share up for grabs. Even Forrester Research, a longtime opponent of enterprise Macs, has changed its tune and now recommends a sweeping sea change. Forrester provides consulting services for IT professionals, so its stamp of approval should go a long way.
Mac sales were especially strong last quarter, but that segment could be further propelled by enterprise adoption, displacing aged PCs running Windows XP. Even the iPhone is being deployed and tested with 93% of Fortune 500 companies.
Key to China
For the Chinese, an iPhone is as much a status symbol as it is a versatile telecommunications tool. China is vast frontier of possible penetration, and despite only having six official retail stores — not including the fake ones — Apple’s China sales over the past 12 months have increased sixfold.
Once Apple inevitably brings on China Mobile (CHL), which is the world’s largest wireless carrier by subscribers in the world’s largest mobile phone market, we will see a whole new era of growth. China Mobile is larger than rival and official iPhone carrier China Unicom (CHU), and currently has 633.5 million mobile subscribers, of which 43.2 million use 3G — while the whole country has 952 million mobile users. 3G penetration in the country is a tiny 4%. So far, China Mobile has roughly 10 million iPhones running unlocked on its network. The carrier is Apple’s key to China.
A Real Apple TV
Despite the challenges current TV manufacturers face, Apple is the only company with the weight and willpower to redefine the broken industry. It’s expected to have a TV set in the works, and Apple’s brand has an uncanny ability to command premium pricing without consumers even thinking twice.
Margins would be lower due to the economics of the industry, but Apple should be able to keep its ink black. The TV industry is a $100 billion market for Apple to tap, and it would be silly to pass up.
Is It Worth It?
The price chart comparison above makes you wonder: is Apple still worth its lofty price?
Source: Morningstar. Growth data as of most recent full fiscal year; valuation data as of 11/11/11.
Looking forward, Apple’s valuation looks downright cheap when comparing its growth with other tech players. Forward P/E is calculated based on consensus estimates of projected earnings and except for last quarter, Apple typically demolishes quarterly expectations, making its valuation even more compelling.
While RIM’s historical growth figures also appear attractive on the surface, its future prospects look dimmer every day. Besides, RIM’s shareholders speak for themselves, and they’ll tell you first hand: They’re not a happy bunch.
The next decade’s prospects look just as good, if not better, than the last. The company has perfected its supply chain, and its most important product categories have gained unstoppable momentum. There are numerous opportunities that haven’t been fully tapped yet, and once they are that momentum will steamroll through new markets.
Apple is still a buy — worth every penny, and then some. And while Apple looks attractive at its current levels, the investment story doesn’t.
Motley Fool contributor Evan Niu owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple, Microsoft, China Mobile, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft, Dell, Google, China Mobile, Apple, and Amazon.com; and creating a bull call spread position in Apple and Microsoft.
Tagged: 3G, apple earnings, apple stock, AppleEarnings, AppleStock, China Mobile Ltd, China Unicom (Hong Kong) Ltd, Dell, Finance, Google, Hewlett-Packard, ipad, IPhone, Mac, Microsoft, Microsoft Windows,