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Is Apple Stock a Good Investment?

19 Min Read
Last Updated March 24th 2021

Apple was established in 1976 by its founders Steve Jobs, Steve Wozniak and Ronald Wayne. Its name chosen by Jobs because of fond memories after visiting an apple farm owned by friends, Apple Computers became incorporated the following year, in 1977.

Developing and selling computer electronics, software, computers and portable devices, Apple soon became known for the Macintosh Computer. However, it was after launching the iPhone, iPod touch and iPad in 2007, which was the same year ‘Computer’ was removed from the company name, that Apple eventually achieved international success.

With a rich history, including a varied financial performance over thirty years since, Apple is renowned throughout the world for its products and, more recently, its services as well. However, is Apple stock a worthy investment? Should you buy Apple shares? What are the advantages (pros) and disadvantages (cons) of doing so? We examine the viability of Apple stock by answering these questions in this article. To begin with, we look at a brief history of Apple.

 

An Apple Overview

Before the Macintosh personal computer was introduced to consumers, Apple had produced the Apple I, II and III, along with the Locally Integrated Software Architecture (LISA) to mixed reactions. Apple I used a television screen as a monitor, which was unique in the 1970s, as many computers did not possess any type of screen. The Apple I was quick to boot up because its boot-up code was contained on a Read Only Memory (ROM) chip. Price and complexity of the Apple I was further reduced by the minimal number of chips used in comparison with other computers.

The Apple II soon followed in the mid-1970s. Featuring an improved television screen, it allowed colour and graphics to be displayed. With a better chassis and built-in keyboard, the Apple II was designed for instant use after purchase. However, with doubts about the marketability for a personal computer, there was difficulty in securing investment. But once this was achieved, the Apple II became an overnight success.

On 12th December 1980, Apple launched an international public offering (IPO) of its stock at $22 per share, using the ticker AAPL on NASDAQ. At the close of trade that day, Apple shares had increased in value by nearly 32% at £29 per share. Apple’s market value was at $1,778 billion. With 4.6 million shares sold, it was estimated that approximately 300 millionaires were created overnight, with approximately forty of them being Apple employees and investors.

Following on from the success of the Apple II as a personal computer, it was decided that the Apple III would be aimed at businesses to compete with companies like IBM and Commodore. Apple was already perceived by them as a threat because of its spreadsheet software. However, the Apple III was a commercial disaster for a variety of reasons including its high price, limited software and incompatibility with the Apple II.

Furthermore, at the insistence of Jobs, who wanted the Apple III to operate silently, there was no cooling fan or vents built in the chassis. This caused overheating and some integrated circuits to disconnect from the motherboard, causing the Apple III to crash. As a result, all Apple III computers were recalled and replaced for free. The Apple III Plus was created soon after, but the damage was already done to Apple’s brand. Now known for their unreliability, business users were once again purchasing products from IBM who had launched their own version of the personal computer during this period.

At the same time as the development of the Apple III, the LISA was being developed, which was a project spearheaded by Jobs. In contrast to the text-based system used in the Apple III, LISA used a Graphical User Interface (GUI). Jobs claimed this was the future of computing, which would eventually familiarise terms such as mouse, icon and desktop. But at a cost of nearly $10,000 per unit, Apple had priced itself out of the consumer market. However, the LISA had provided the basis for the Mackintosh computer.

Following the last two disasters for Apple, the vision for the Macintosh, or Mac, was to be affordable yet meet all user needs with ease and without the need for them to continuously refer to a manual for guidance. In 1984, with its innovative mouse, easy to use GUI, better specifications and option for a memory upgrade, the Mac became a success. However, behind the scenes Jobs was clashing with John Sculley, Apple’s new CEO. Jobs was removed from the decision-making process and soon after resigned in 1985. Thereafter, Apple went through several CEO’s. It’s AAPL shares decreased in value in the 1990s, possibly as a result of this instability of management and leadership. When Jobs resigned, shares decreased further still.

Despite the Mac being a success, it could not compete with the affordability of IBM’s PC. Sculley had increased the cost of purchasing a Mac to increase profits and advertising. But the vast array of configurations he introduced was out of alignment with Apple’s reputation for simplicity and this cost Apple sales. As a result, in 1994, Sculley was replaced with Michael Spindler who, after two years of being appointed CEO was replaced with Gil Amelio in 1996.

Amelio outlined Apple’s failures as being a lack of cash, direction and focus, poor quality hardware and software and an out-of-control culture. Despite Amelio’s several initiatives, such as shipping the Mac OS 8, reducing the amount of Apple employees and purchasing Job’s new company, NeXT, Apple still lacked direction. In combination with this, product quality was also still an issue. This led to Apple stock reaching its lowest point in Apple’s history. With $740 million lost in the second quarter of 1997, Amelio was replaced by Jobs, who was reappointed as interim CEO later that year.

Despite Apple stock being at a record low for the company, that same year Jobs announced a $150 million Microsoft investment in Apple. This was to continue the development and release of Microsoft Office for the Mac. Consumer confidence in Apple began to strengthen once more. It also encouraged businesses to increasingly continue to purchase Macs. In addition, Jobs revoked the licensing of Apple ROMs and Mac OS to other businesses. This meant potential company sales were no longer lost to Apple competitors. Jobs then created the colourfully successful iMac, which also helped to cement Apple’s successful comeback.

Gradually expanding into consumer electronics, in 2001 Apple launched the iPod, which revolutionised the way people listened to music and accessibility to it. Within six years, approximately over 100 million units were sold. Apple had captured over 70% of the portable digital music market.

Apple also opened number of stores which, despite initial reservation, were successful. By 2004, Apple’s sales had topped $1 billion per quarter and reached the same amount in annual sales, which was quicker than any other American retailer. Apple shares had also increased in value. In 2007, the word ‘Computer’ was removed from Apple’s official name, indicating its expansion into the consumer electronics market. The iPhone and Apple TV launched in the same year. Shares in Apple continued to increase into 2008, by which point Apple had achieved annual sales of $32.48 billion.

However, from September 2008 until early 2009, a bleak economy, coupled with concerns surrounding Steve Jobs’ health, Apple’s stock value decreased. Its net profit, however, had increased between 2005 to 2011, $5 billion to over $25 billion. In 2012, Apple stock once again increased to 648.11 United States dollars (USD) at the close of trade, which was a new high for the company. This was partially due to the launch of the iPhone 5 and rumours of a possible launch of a smaller iPad and Apple TV.

Apple shares continued to increase year on year and by late 2018, Apple stock was trading for approximately $170 per unit. Its worldwide annual revenue for its fiscal year 2018 totalled more than $265 million. Furthermore, in August of this year, Forbes reported that Apple was the first trading American company to have a value of one trillion USD, having doubled its valuation in the last two years alone.

Read Also: 20 Top Stocks To Buy In 2021

Undoubtedly Apple’s fortunes have varied throughout nearly four decades since its incorporation. With the salient points concerning Apple’s history discussed, the pros and cons of buying apple stock shall now be examined.

Would You Consider Investing In Apple Stock?

Pros of Purchasing Apple Stock

A considerable pro of investing in Apple stock is customer loyalty to the brand.

With many Apple products dominating the electronic markets they are in, such as laptops, smartphones and smartwatches, and their compatibility with one another thanks to the iOS, this is understandable. Therefore, despite the decline in sales, which could be contributed to the pandemic and widespread unemployment caused by this, products like their smartwatches are not going to disappear overnight. The iPhone will also continue to contribute to Apple's revenue as the largest source of income for a while to come.

Consumers who are using outdated phones, iPhone or otherwise, may have used the iPhone 12 release as an opportunity to upgrade to it.

With the iPhone 12 being smaller and cheaper than other iPhones, it may lead to Apple once again gaining the market share in the smartphone market from their current position of fourth. As previously mentioned, Apple’s products are designed to work with one another, therefore there is potential demand for the iPhone 12 because of the ease of transferring from one product to another.

Apple’s software services are increasing in demand.

This is partially because of Apple’s expansion into this area with multiple subscription software services available to consumers via Apple One. Apple One is an amalgamation of Apple’s six subscription services; Apple Music, Apple TV+, Apple Arcade, iCloud, Apple News+ and Apple Fitness+. Launched in October of this year, after the iPhone 12 release, Apple One is available in over one hundred countries and regions. With three different monthly price plans; individual, family and premium, consumers should be able to find a cost-effective plan to suit their needs. Despite Apple One receiving mixed reviews, it is considered a good deal for those consumers who use several Apple subscription services. With more consumers purchasing Apple services and because of Apple’s iOS, it is likely that this trend will continue.

With 5G being endorsed by global telecommunications companies, it could benefit the sales of the iPhone 12 and increase Apple’s revenue.

 

Cons of Purchasing Apple Stock

With Apple’s history, there is a concern that its overvaluation is too high.

In its recent earnings report, Apple’s price-earnings ratio was approximately 35, 14.4 higher than what it had been in the last thirteen years. When considering this valuation occurred during the pandemic, at a time where consumers are reluctant to purchase items for a variety of reasons, there is a potential risk that the amount of consumers upgrading their phones may decrease if their need for a new phone is unwarranted.

iPhone sales were decreasing before the pandemic as well as during the last quarter which may be a sign that Apple needs to quickly diversify into other areas of business to increase its revenue.

Antitrust in Apple could make investors reluctant to invest in Apple stock, merely because of the uncertainty that antitrust induces. With legal complaints increasingly filed against Apple and the potential implications of being forced to allow third party application installations in its iOS, a decrease in its market value could suddenly be a real concern.

Legal outcomes could further induce regulatory risk concerning either Apple products or services. This could then affect the value of Apple stock.

 

Market Value of Apple Stock: 2020 – 2025.

Despite the uncertainty caused by the Coronavirus pandemic, in the last quarter ending September (Q3),  Apple has seen an increase in sales of the Mac and iPad, at 29% and 46%, respectively. Indeed, Apple reports that its fiscal year 2020 third quarter (Q3) showed an increase in revenue at 11% in comparison to the same quarter a year ago, with international sales accounting for 60% of it. Although iPhone sales have decreased year on year by 20%, Luca Maestri, Apple’s CFO, expects this to reverse during the December quarter and increase revenue, along with sales of other Apple products.

At the time of writing this article, Apple stock (AAPL) is valued at 123.40 United USD. According to NASDAQ, the past five days has shown a steady increase of closing prices, ranging from 116.59 USD at the close of trade on 27th November to 123.08 USD at the close of trade on 2nd December 2020, respectively. This long-term trend is expected to continue throughout 2021 and into 2022, as can be depicted in Chart 1.

 Apple Inc (AAPL) Forecast Chart, Long-Term Predictions for Next Months and Year: 2020, 2021

Apple stock price forcast chart

Graph 1 from Wallet Investor

Based on this, it is predicted that a five-year investment in Apple stock will provide an increase in return of nearly 90%. Therefore, if you were to invest in Apple stock at the end of 2021, you could receive a potential increase in return of 80% at the same time in 2025, as depicted in Graph 2.

Read More: Apple Stock Price Prediction For 2021 And Beyond

Apple (AAPL) Forecast Earnings Growth

Apple forcast earnings growth chart

Graph 2 from Wallet Investor.

The consumer electronics market, where Apple stock is listed has been popular during the past twelve months and is thus considered as being a bull market. This shows no sign of dissipating in 2021 or subsequently doing so in five-year forecasts of Apple stock value. However, if you still have not decided about whether to buy Apple stock, here is our opinion based on the information presented in this article.

Ready To Invest In Apple Stock?

Is Apple Stock a Good Investment?

Apple is a company with a considerable and colourful history. Undeniably, throughout the years, there were occasions when Apple was struggling to find direction and made several mistakes in terms of product development and marketing. However, with the sole focus no longer on electronic consumer products, such as computers, but now also on services, Apple appears to have once again found itself.

This is evident with the introduction of several subscription services under the Apple One umbrella in addition to the iPhone, iPad and iPod. Apple has a loyal and expanse customer base which shows no sign of abating. As it is, despite being in the middle of a pandemic, Apple is still making a profit.

 Read More: How to Pick Stocks: A Complete Guide for New Investors

Should I buy Apple Stock?

invest in Apple stock

Yes, you should buy Apple stock (ticker AAPL) but as a long term investment as it’s currently in a bull market which shows no sign of changing. Therefore, Apple stock has a good return, with an expected long-term increase. This makes investing in Apple a viable option. Current earning potential for Apple stock over one year is +13.21%. Therefore, if you initially invested $150 at the start of this period, you could expect to receive $263.21 at the end of it.

Current predictions for Apple stock in respect of a five-year investment are approximately +86.35%, with a stock price return of 229.397 USD to be expected. Therefore, if you were to invest $150 in them, you could receive a return of $236.35 at the end of this five year period.

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Keywords and Phrases

Bull Market

Typically referred to the stock market to describe a financial market whereby prices therein are rising or expected to rise. A bull market can last for months or years.

Fiscal Year                           

A period of one year used for financial reporting and budgeting by companies and governments.

Invest(ing)

In respect of finance, the act of placing money into a financial scheme for a period of time, whether it be shares, bonds or property, in the hope of gaining profit, thereafter.

Investment

An asset or item, such as shares, bonds or property, that you invest in, in the hope of generating income or having the original invested value being appreciated, over a period of time.

NASDAQ                             

Originally an acronym for National Association of Securities Dealers Automated Quotations, the NASDAQ originated as a form of quotation system until 1971 when it became the first electronic stock market.

Overvaluation

Is the term given to the current price of a stock that isn’t justified by its price-earnings. When this term is applied to a stock, it is typically expected that its price will eventually reflect its price-earnings.

Price-Earnings Ratio                     

Also known as the price multiple or earnings multiple, this ratio measures the current share price of a company in relation to its per-share earnings.

Price-Sales Ratio                

This ratio measures the value of a company’s stock by dividing its market capitalisation (outstanding shares multiplied by share price) by its past 12 months total sales/revenue. The lower the ratio, the better the investment.

Regulatory Risk       

This usually occurs when a security, business, sector or market is affected by a change in law or regulations. In the instance of Apple, the value of their stocks could decrease if they are forced to allow third party installations in the iOS,

Revenue                               

Gross income from sales, including any discounts or deductions. Costs are deducted from it to determine net income.

Share            

Units of equity ownership, by means of a financial asset, in a corporation, which are distributed when there are residual profits in the form of dividends. If the value of the company increases, so do the value of shares, thus increasing the dividends the investor can expect to receive.

Stock                                    

Security that represents a fraction of ownership of a corporation via its assets and profits equal to the amount of stock owned. Units of stock are shares.

Ticker/Ticker Symbol

Typically consisting of letters and more commonly referred to as a “ticker”, every ticker symbol is unique to each security listed for investors and traders to use when making transactions in the financial markets.

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