Last Friday (21 August), I conducted a simple poll on The Singaporean Investor’s Telegram broadcast group (you can join the group here to receive the latest updates) to find out whether or not you will be interested to read about company analyses of US-listed companies written in “The Singaporean Investor” way, similar to my company analyses of Singapore-listed companies. A huge majority voted in favour of it so here I am!
The first US-listed company I am going to write about today is the first US$2 trillion company (in terms of its market capitalisation) in the United States – Apple Inc. (NASDAQ:AAPL). You can read the news report by New York Times about it here.
Another news about the company to highlight (in case you’re not aware) is that it will be doing a four-for-one stock split (meaning if you hold one share of Apple, after the share split, you will own 4 shares of the company; at the same time, the share price of the company will be divided by 4 after the share split), and shares will be trading at the new split-adjusted price from 31 August 2020.
In this post, I will be sharing with you all the researches I have done about the company – including a brief introduction about the company, along with its financial performances, debt profile, and dividend payouts over a 5-year period (between FY2015 and FY2019.) On top of that, you will also find a summary of the company’s performances for the first 9 months of the current financial year so far (the company has a financial year end on the last Saturday of September.) Finally, I will also be looking at the company’s 5-year historical valuations and compare it against the company’s current valuations (based on its current share price) to determine if the share price of Apple Inc is considered to be trading at a discount or at a premium currently.
Are you ready? Let’s begin…
A Brief Introduction to Apple Inc.
- Established in 1977, Apple Inc. became a public listed company since December 1980 at US$22.00/share (imagine how much capital appreciation you’d be sitting on right now had you invested in the company back then and continue to stay invested since its IPO.)
- The company has a financial year end on the last Saturday of September (as such, the financial year end for 2020 will be on 26 September 2020.)
- In terms of the company’s businesses, it is involved in the designing, manufacturing, as well as in the marketing of the iPhone, Mac, iPad, wearables and accessories (such as AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, along with other Apple-branded and third-party accessories.)
- Apple Inc. also sells a variety of services including books, music, video, games, podcasts, AppleCare, iCloud, Apple Card, Apple News+, as well as Apple Pay (I’m sure you are familiar with what they are so I’m not going to elaborate further.)
- In the latest financial year 2019 ended 28 September 2019, iPhone contributed a lion’s share towards its overall revenue at 54.7%, followed by its services business at 17.8%, its sales of Mac (at 9.9%), wearables and accessories (at 9.4%), and lastly, iPad (at 8.2%.)
- Finally, as to which geographical location contributed most to Apple Inc.’s revenue in FY2019, they are as follows: Americas (at 44.9%), Europe (at 23.2%), Greater China (at 16.8%), Japan (at 8.3%), and the Rest of Asia Pacific (at 6.8%.)
Apple Inc.’s Financial Performances over a 5-Year Period (between FY2015 and FY2019)
In this section, you will find key financial statistics of Apple Inc. over a 5-year period – its total revenue and net profit, its gross and net profit margin, as well as its return on equity:
Total Revenue and Net Profit (USD’mil):
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | |
| Total Revenue (USD’mil) | $233,715m | $215,639m | $229,234m | $265,595m | $260,174m |
| Net Profit (USD’mil) | $53,394m | $45,687m | $48,351m | $59,531m | $55,256m |
The company’s top- and bottom-line saw year-on-year (y-o-y) declines in 2 out of 5 years I have looked at, due to:
FY2016: The 7.7% y-o-y decrease in its total revenue and 14.4% y-o-y decrease in its net profit can be attributed to a y-o-y decrease in the sales of iPhone (by 12%), iPad (by 11%), and Mac (by 10%.)
FY2019: It’s 2.0% y-o-y dip in its total revenue, as well as a 7.2% decrease in its net profit is due to a 14% drop in the company’s iPhone sales.
Over a 5-year period, Apple Inc.’s total revenue grew at a compound annual growth rate (or CAGR) of 2.2%, but its net profit only managed to grow at a CAGR of just 0.7%.
Gross and Net Profit Margin (%):
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | |
| Total Revenue (USD’mil) | 40.1% | 39.1% | 38.5% | 38.3% | 37.8% |
| Net Profit Margin (%) | 22.8% | 21.2% | 21.1% | 22.4% | 21.2% |
As you can see from the chart above, Apple Inc.’s gross profit margin have been trending downwards over the 5-year period I have looked at, while its net profit margin have somewhat remained consistent at around 21-22%.
Return on Equity (%):
For the benefit of those who may be hearing about it for the first time, Return on Equity (or RoE) is a measure of profitability (in percentage terms) a company is able to generate for every dollar of shareholders’ money it uses.
For instance, if a company’s RoE is at 15.0%, it means the company is able to generate a $15 profit for every $100 of shareholders’ money it uses.
With that, let us now take a look at Apple Inc.’s RoE (which I have computed) over the past 5-years:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | |
| Return on Equity (%) | 44.7% | 35.6% | 36.1% | 55.6% | 61.1% |
While its RoE suffered a dip in FY2016, the remaining years saw y-o-y improvements.
Also, Apple Inc.’s RoE, at 61.1% in FY2019 is considered impressive in my personal opinion.
Debt Profile of Apple Inc. over a 5-Year Period (between FY2015 and FY2019)
When it comes to shortlisting a company to invest, my preference is towards companies with very little or no debt (at the same time, it is able to fulfil its short-term debt commitments), and also one that is in a net cash position.
In this section, let us study Apple Inc.’s debt profile between FY2015 and FY2019 – particularly its current ratio, and also whether the company is in a net cash/debt position:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | |
| Current Ratio | 1.1 | 1.4 | 1.3 | 1.1 | 1.5 |
Current ratio, in layman terms, measures the ability of the company to service its short-term (under one year) debt commitments, and a ratio of more than 1.0 means it is able to do so.
From the table above, for all the 5-years I have looked at, Apple Inc.’s current ratio have been maintained at above 1.0.
Next, let us find out whether the company is in a net cash or net debt position:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | |
| Cash & Cash Equivalents (USD’mil) | $21,120m | $20,484m | $20,289m | $25,913m | $50,224m |
| Total Borrowings (USD’mil) | $55,829m | $78,927m | $103,703m | $102,519m | $102,067m |
| Net Cash/ Debt (USD’mil) | -$34,709m | -$58,443m | -$83,414m | -$76,606m | -$51,843m |
Even though the company is in a net debt position in all the 5 financial years I have looked at, I noticed that since FY2018, it has been improving.
Apple Inc.’s Dividend Payout between FY2015 and FY2019
Moving on, let us now take a look at Apple Inc.’s dividend payout over a 5-year period in this section.
The company declares a dividend payout to its shareholders on a quarterly basis (however, you need to bear in mind that if you are a Singaporean investing a US-listed company, all dividend payouts will be subjected to a 30.0% withholding tax, meaning the dividends that you receive will be less 30.0%.)
The following table is Apple Inc.’s dividend payout to shareholders in the last 5-years (between FY2015 and FY2019), along with their dividend payout ratio:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | |
| Dividend Per Share (USD/share) | $1.98 | $2.18 | $2.40 | $2.72 | $3.00 |
| Dividend Payout Ratio (%) | 21.5% | 26.2% | 26.1% | 22.8% | 25.2% |
Over a 5-year period, Apple Inc.’s dividends per share to shareholders have went up every single year – from US$1.98 in FY2015 to US$3.00 in FY2019 – a CAGR of 8.7%.
Looking at its dividend payout ratio (which have been maintained at under 25.0%), you can tell that they have retained a huge portion of their earnings for further growth ahead.
A Look at Apple Inc.’s Current Financial Year Results (9M FY2020)
In this section, let us take a look at some of the key financial statistics of Apple Inc. for the first 9 months of FY2020 (between 29 Sep 2019 and 27 June 2020), compared against the same period last year (i.e. 9M FY2019):
| FY2015 | FY2016 | % Variance | |
| Total Revenue (USD’mil) | $196,134m | $209,817m | +7.0% |
| Net Profit (USD’mil) | $41,570m | $44,738m | +7.6% |
| Gross Profit Margin (%) | 37.8% | 38.3% | |
| Net Profit Margin (%) | 21.2% | 21.3% | |
| Cash & Cash Equivalents at End of Period (USD’mil) | $52,151m | $35,039m | -32.8% |
| Total Borrowings (USD’mil) | $98,465m | $101,557m | +3.1% |
| Net Cash/ Debt (USD’mil) | -$46,314m | -$66,518m | |
| Dividend Per Share (USD/share) | $2.23 | $2.36 | +5.8% |
My Observations:
- The current financial year 2020 has been a good one for Apple Inc. so far (in my personal opinion), where its top- and bottom-line continued to record improvements (by 7.0% and 7.6% on a y-o-y basis respectively), and this can be attributed to y-o-y improvements recorded in its iPhone, Mac, iPad, wearables and accessories sales, as well as in its services business.
- Similarly, the company’s gross profit margin saw a 0.5 percentage point gain on a y-o-y basis, while its net profit margin edged up 0.1 percentage point in the same time period.
- Also, on a y-o-y basis, Apple Inc.’s dividend payout to shareholders saw a 5.8% increased to US$2.36/share (compared to US$2.23/share in 9M FY2018.)
- The only negative is that the company sank deeper into a net debt position as at the end of 9M FY2020, due to a 32.8% y-o-y drop in its cash and cash equivalents, coupled with a 3.1% y-o-y increase in its total borrowings.
Are the Shares of Apple Inc. Trading at a Discount or Premium Currently?
Finally, let us take a look at whether or not at its current share price, is Apple Inc. considered ‘cheap’ or ‘expensive’.
One of the ways I evaluate this is to take its current valuations (based on its current share price) and compare against its historical valuations.
The following table is Apple Inc.’s 5-year historical valuation (between FY2015 and FY2019) I have computed, together with its average:
| FY 2015 | FY 2016 | FY 2017 | FY 2018 | FY 2019 | Average | |
| P/E Ratio | 12.4 | 13.6 | 16.7 | 19.0 | 18.4 | 16.0 |
| P/B Ratio | 5.4 | 4.7 | 5.9 | 10.0 | 10.7 | 7.3 |
| Dividend Yield (%) | 1.7% | 1.9% | 1.6% | 1.2% | 1.4% | 1.6% |
As at 25 August 2020, the share price of Apple Inc. was trading at US$499.30, and as such, its current valuations are as follows:
P/E ratio: 36.5
P/B ratio: 29.5
Dividend Yield: 0.6% (computed based on the total dividend payout of US$3.00/share in FY2019)
Comparing its current vs. its 5-year average valuations, it seems that the current share price of Apple Inc. is trading at a premium, due to its much higher-than-average current P/E and P/B ratios, along with a much lower-than-average current dividend yield.
In Conclusion
While Apple Inc. managed to see growth in its top-line over the past five years (with its CAGR at 2.2%), its bottom-line growth was somewhat muted in my opinion (where it grew at a CAGR of just 0.7%.) That said, its net profit margin have been maintained at a consistent level over the past five years (between 21-22%), and that its return on equity have also grown steadily over the last two years.
Looking at the company’s results over a nine-month period so far (the company has a year end in September), I am of the opinion that it will post an improving set of fourth quarter, as well as full-year results for the financial year 2020 which will be ending on 26 September 2020.
With that, I have come to the end of my sharing on Apple Inc. today. I hope you have found my maiden share (on a US-listed company) useful. Should you have any feedback or suggestion for me, do feel free to send me a message here.
Finally, everything that you have just read in this post is solely for educational purposes only. They do not imply any buy or sell recommendation for the shares of Apple Inc. Please do your own due diligence before you make any investment decisions.
Disclaimer: At the time of writing, I am not a shareholder of Apple Inc.
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