Previously, I have written about Apple and explained to you my reasoning behind buying the only company with a $2 trillion market cap. At that time of writing, Apple was priced at about US$400. (I bought shares of Apple before that because I felt that it was slightly undervalued compared to other technology firms). Since then, it has reached a stock price of US$500 after announcing the Apple stock split. This price is absurd and brings their PE ratio (37.81) to almost an all time high (38.44) is it’s all time high valuation). It looks like investors are understanding the wide moat and great financials of Apple as well as its venture towards a more sustainable and reliable subscription-based business model.
Why did the price surge up?
We do not know. Apple has already announced its earnings a while ago. If anything, there has been bad news for Apple, yet the price continues rising.
As an investor, we can only speculate the reasons in the short-term. However, the company’s fundamentals remain very strong.
Based on Momentum?
It seems quite fair to say that the Apple stock has been riding its bullish momentum. Although their recent reported revenue growth of 5.7% was not very impressive, it surpassed Wall Street’s expectations greatly.
Moreover, it painted an even clearer picture of Apple’s future. As I mentioned in my article previously, Apple has been looking to expand its services revenue. They have proven to have outstanding growth for the company and slowly is competing with the total revenue from their Macs and iPads. This generates a more steady and reliable stream of income that investors like.
Investors love stability.Shown by Mr. Market
Compared to the other Big Tech firms, Apple’s PE ratio seems to tend on the higher end. Although it possesses a lower PE ratio than Netflix and Amazon, they still have higher PE ratios than Alphabet, Microsoft and FB. Of which, Microsoft has a very diversified source of revenue (which makes it attractive as well).
Although I will not say that this is the best price to enter the market to purchase Apple stock, the price remains reasonable, at least for the next five years to come. There are definitely better times to enter, but you have to pay a premium for a good company. The bears of Apple will say that this company has reached its maximum growth and it is difficult for it to diversify its income and improve its margin.
I feel that it is untrue. Apple has been diversifying its revenue and it has shown very good progress, which is one of the reasons behind its rise in stock price.
Is the Apple and Epic Games lawsuit going to affect Apple?
I personally feel the lawsuit between Epic Games and Apple is kind of dumb. Epic Games has orchestrated the whole hooha. They produced their video and even launched a full out social media campaign against Apple.
As Apple has already stated in its terms and conditions for developers to use their App Store, they have to comply to their rules. However, it does not help that the American government is worried that these tech firms are too big and competition will not be a factor for them. This might spur legal action against the company to break up.
Currently, this is the risk of holding Apple. Apple is a very good stock. It is a risk I am willing to take. I believe Apple is not in the wrong, but what I think may not be what the US government thinks.
Buy before or after the Apple stock split?
If you are reading this, it is probably too late to decide and “do your own due diligence”. Look, buying before or after the Apple stock split does not matter. It is a COSMETIC change.
If you believe that the stock will rise after the Apple stock split and will rise in the long term, the few dollars that it rose after the stock split will not make much of a difference in your earnings in the long run.
However, if I were you, I would hold out for a bit now. The stock is slightly overvalued now. Wait till the stock is slightly more undervalued compared to its competition, before investing. Although it may never happen, I feel that buying into overvalued companies is never a wise decision.
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