…from a PC guy to a convert to an Apple Uber Geek and all tech in-between!
Apple stocks have rebounded from their drop over the last couple of days. They are up 23 point so far today.
If Apple’s Stock Price and Market Capitalization was legitimate and based on fact instead of speculation its stock price would not wildly fluctuate on a daily bases. Establishing Apple’s market capitalization on its historical sales growth which is clearly unsustainable is a deceptive method which many analysts have utilized to promote apple stock as being greatly undervalued though it has increase by more than 250% in the last 2 years.
These are the facts:
Apples 2011 net income is reported to be 26 billion on revenues of 128 billion. This is a 185% increase from Apple’s 2010 net income which was 14 billion. This growth rate will never occur again due to the considerable income apple has achieved.
Many analysts believe Apple will expand it sales by 20% for the next 5 years due to its smaller market share of a sales compare to its competitors. This is a great deception. To accomplish this apple sales will have to increase to 153 billion in 2012 and by 2016 and have annual sales of 318 billion. This will never happen.
Apple’s average net income over the last 5 years is 11.3 billion. This income average would typically be utilized to estimate a value for and asset or company. How is it possible for a company with an average net income of 11.3 billion to achieve a market capitalization of 590 billion without some form of manipulation by the institutional investors?
I realize there is a difference between market capitalization and the use of a capitalization rate to determine value. However, market capitalization is a qualitative value not easily determine as it represents the public consensus on the value of a company’s equity and in Apple’s case it has been inflated.
The use of a capitalization is a quantitative method to determine value from quantifiable data such as income and expenses.
Let’s assume an unlikely scenario that Apple’s net income is 40 billion in 2012. To achieve this Apple will have to increase its sales by 157% or by 69 billion, this will never happen. But for this analysis I will utilize a net income 40 billion to determine a value for Apple as a company.
If a typical capitalization rate of 10% is applied to this net income, a value for the company can be estimated:
40 billion / 10% = 400 billion.
I acknowledge the capitalization rates are assumption, but historically a 10% rate is typically used by investors. By this analysis Apple’s market capitalization appears to be in excess by at least 265 billion.
Now let get to the 1000 dollar a share price which every analysts and his brother are saying Apple’s stock will achieve in a relatively short time. This will mean that Apple as a company is worth a Trillion dollars with a the capital recovery of more than 25 years on the money invested as Apple’s net income will likely stagnate at 40 billion, due to the enormity of that sum.
Every additional billion of net income will be more difficult to earn, due to its enormous size which is 1000 million. This amount of money buys quite a few Ipads, downloads and other apple products. How many more apple products can the market absorb?
If Apple wishes to capture more market share of sales it will require developing additional products with lower prices as the more affluent markets have been saturated, leaving the less capable markets the task of buying all though millions products which are forecasted to be manufactured and sold by apple in the coming years. Eventually their products will become common place and less desirable. You won’t be that stylist with your new iphone or ipad, you will be just another part of the herd.
Just as computers, big screen TVs and many other electronic devices have been commoditized, so will apple products if they wish to generate more sales. This directly relates to Apple’s value as a company and its allege income growth potential. Lower sale prices for Apple’s products will directly impact its net income and value as a company.
If apple stock price continues to soar to new heights, do not jump for joy as it has nothing do with its intrinsic value as a company but is just another example of Wall Street manipulation by a handful of Hedge Fund Managers which allows them to collect their billions for managing the working class retirement funds. Seventy percent of Apple’s stock is owned by institutional investors which have colluded to inflate apple stock price, due to its incredible growth rate over the last 5 years and the difficulty in evaluating its most important characteristic which is the marketing of its products.
Eventually, one of the big investors is going to folded there hand and Apple stock will drop like a stone. Remember this comment because a decline in Apple Stock is in the near future.
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