Recommendation
Over the last 5 years, Apple Inc. has recorded an impressive growth with an average annual compound rate exceeding 33.8%. Its great performance is aided by its strong economic position and its ability to rely on innovations and creativity to maintain its status as a market leader and wade off competition, especially for its niche. The company has established a niche targeting the high-end segment of the market with various product options. With a current market price of $119.26 per share, the company’s share is undervalued compared to its intrinsic value at $11.94that takes into consideration all the present values of all the expected cash flows. It is a recommended buy option because of the rapid growth that the company is experiencing; all other factors are held constant.
The attractiveness of products developed by Apple Inc. is because of its ability to rapidly innovate and meet the needs of the emerging market segments. The company has a strong economic position as a leading technology firm, and the brand established is that of quality products. Its earnings per share and dividend have grown steadily over the years, with the growth expected to grow with each product released in the market. The company has a lesser vulnerability to the changes in the market and industry at large because it has strategically positioned itself to the market segment that is less volatile. It has an impressive eps of $3.28. Its high PE ratio at 36.36 points to the expectation that even though the share of the company is currently overvalued, shareholders and investors have the confidence that the share will have a higher growth rate in the future.
In the short run, the forward dividend and yield of 0.82 (0.69%) might discourage speculative investors from taking into consideration that the shares are also trading ex-dividend. The prevailing economic conditions characterized by slowed growth, and many companies underperforming has impacted several companies across the industry. Numerous companies have also projected losses or reduced profits because of the pandemic, and that explains why holding a sell position in the short run is a proper strategy. However, many analysts predict that the markets will bounce back with several occurrences, including discovering the vaccine for the pandemic. Such news and the rapid growth of the company across different key performance indicators should encourage investors to take a long position in the long run and hold the shares as opposed to selling the shares.
Another important observation is that even though the company is too high on a historical P/E basis compared to others like Seagate technology is in the same sub-industry as GICS, it is too low on a dividend yield basis. With an annual dividend yield of 0.37%, it should trade at $221.62 per share when dividing the annual dividend of 82 cents per share with the dividend yield. The Seagate technology share price has recently recorded a drop occasioned by the disk-drive makers September quarter report that indicated the impacts of the ongoing pandemic. Still, the company is also undervalued, with many value investors predicting that the good prospects and good financial health of the company in an environment without the negative economic consequences occasioned by the pandemic would attract investors. However, Apple Inc. remains the best.