Appletastic

Investingcanbecruel。

EverynowandagainIfinditusefultolookbackatmyinvestmentdecisionsandtrytolearnfrommistakes。

Atthebeginningofhisyear,IwasknockedsidewaysabouttheprofitwarningfromApple(AAPL)andexitedoneofmyfavouritestocks,andoneofthemostprofitableovertheprevious5years,asperthispost。

IfIhadignoredallthenegativenewssuchasChinaworriesortheimplicationofthedroppingoftheiPhoneunitdisclosures,andblindlyheldfaith,Iwouldhavebeenrewardedbyanincreaseofapproximately77%inthestocksincethedateofthatpost!

Justshowshowcluelessthisboggeris,dearreader!

Inmydefence,thegraphbelowoftheactualresultsforFY2019illustratehowtheissuesthatconfrontedAAPLatthattimeplayedout(moreontheestimatesfor2020later)。

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Ascanbeseenclearlybythe12-monthtrailingrevenuesplit,AAPL’siPhonerevenueplateauedinQ42018andwentintodeclineoverFY2019duetothefailureofitsstrategytopushaverageiPhonepriceshigher。

EvenAAPLdiscoveredthatitisnotimmunetopriceelasticity。

WiththeintroductionoftheiPhone11andtheplannediPhoneSE2,AAPLhasnowreverteditsstrategybacktowardsanASPfortheiPhonebelow$700whilstitharvestsitsmassiveinstalledbaseforservices。

Newcheaperhandsetsandthepossibilityofanew5Gsuper-cyclein2020hasmeantthatAAPLisonceagainamarketdarling。

Takingsomeofthecurrentanalystprojectionsfor2020andthebullishQ12020guidancefromAAPL,Irevisedmy2020estimatesasbelow(I,likeeverybodyelse,mustmakemyownestimatesofhandsetunitsaleseachquarter)。

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Intermsofvaluation,ifIstickwithmytrustedAAPLvaluationmethodologyoftheforwardPEexcludingcashratioanalysis,usingmyEPSestimatesfor2020,thestockiscurrentlytradingarounda17PE,approximately75%abovethe10-yearaverage!

IfIreverttothebullthesis(heldbeforethemeltdownlatelastyear)thatthemarkethasrecognisedthatAAPLisnotpurelyahardwarefirmanylongeranddeservesahybridhardware/softwareratingtoreflectitsgrowingservicesbusiness,thecurrentpriceisapproximately30%abovethefittedtrendline(asaproxyforthehybridvaluation),asbelow。

Iwillhavetocomeupwithabetterhybridvaluationmethodologyinthefuturebutitlldofornow(allideaswelcomeonthatfront!

)。

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So,thebottomlineisthatAAPLisrichlypricedcurrentlybutwaitingforaperfectentrypointmaybeamugsgameforsuchaqualityfirmwiththepossibilityofanewiPhonecyclejustbeginning。

AAPLhasyetagainshownhowitcanadaptandchangecoursewhenitsstrategyisclearlynotworking。

Still,I’llbeamugforawhilelongertoseehowthismarketandoverallvaluationsdevelop(therewilllikelybeahostofupgradesforAAPLinthecomingweeks)。

IdoadmittomissinghavingAAPLinmyportfolio,soIwilllikelynotwaittoolongbeforeestablishinganinitialpositionagain。

Ifanyofthehypearound5Gbecomesrealityas2020develops,IcanseeAAPLbeingabigbenefactornextyear。

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