Apple Arrow: Bear vs. Bull

apple (AAPL -5.16%) It is one of the world’s most popular companies and has no shortage of bulls defending it or bearing the mockery of Apple stock. This is a healthy advantage for properly functioning financial markets. For every seller, there must be a buyer. Otherwise, the person who wanted to sell would not be able to sell his shares, and the person who wanted to buy would not have anything to buy.

Usually, both sides have good reasons (at least for them) for taking the positions they take. With that in mind, let’s consider the bull and bear issue for the Apple stock.

Image source: Getty Images.

Apple Taurus case

Apple has proven that it can create innovative products and services. The company has built this ability over decades of tinkering with technologies and innovations to develop some of the most customer-friendly products that consumers can buy. Ease of use is undoubtedly a big reason why so many consumers adopt Apple products, starting with Mac computers, then iPods, then iPhones and iPads – the list goes on.

Apple has invested its product development success into a strong complementary services business. As of the last quarter (ended March 26), Apple’s services business accounted for 20% of sales. Continued growth in this segment is considered positive for Apple because this segment of the business offers a gross profit margin of 72.6%, compared to a gross margin of 36.4% for the products segment.

Operating Income Chart (Annual) AAPL

Operating Income (Annual) Statements for AAPL by YCharts

Speaking of earnings, Apple has a lot to brag about. From 2014 to 2021, Apple increased its operating income from $52.5 billion to $108.9 billion. It’s a miraculous business of generating $50 billion in operating income. Apple has doubled that number in the past seven years.

Finally, Apple’s revolutionary cause includes untapped opportunities, such as self-driving electric cars. According to Bloomberg, Apple is working on plans to launch a fully self-driving car as early as 2025. The product could be a game-changer and reward investors handsomely if it succeeds.

The Bear’s Argument Against Apple

The bears will highlight that Apple is still basically an iPhone company, despite all the great things about the aforementioned company. In the six months ending March 26, the iPhone accounted for $122 billion of Apple’s total $221 billion in revenue. Moreover, the iPhone is responsible for many other products of the company that might not be as prominent without the iPhone.

This argument is correct. An important part of Apple’s services revenue comes from advertising sales. the alphabet He is said to be willing to pay Apple $12 billion annually to be the default search engine for, among other products, the iPhone. If the iPhone is not very in control, it will not be able to charge such a fee. This certainly departs from the diversified business narrative with multiple drivers of revenue and profit growth.

AAPL Free Cash Flow Chart Rate

AAPL Price for Free Cash Flow Data by YCharts

Finally, bears will point to Apple’s already high valuation as a reason against investing in stocks. As of this writing, Apple boasted a market capitalization of $2.4 trillion. Go back and forth with Aramco Saudi Arabia About who took the title of the most valuable public company on the planet. There is only so much room to go up at a really high price. Looking at it another way, Apple is trading its price-to-earnings cash flow and price-to-earnings-free cash flow to 23 and 24, respectively, which have historically been at the higher end of their ranges.

In general, both bull and bear cases make good points about the direction of the Apple stock from here. Personally, I fall into the bull camp. For me, the rise in services business and the potential for innovations justify the outstanding rating.

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