Is Apple Slowly Rotting Away?

With shares of Apple Inc. (NASDAQ:AAPL) trading at around $527.00, is AAPL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The biggest news of the day is that there have been more than 40 billion apps downloaded for products such as the iPhone, iPad, and iPod Touch. Almost half of these downloads took place in 2012. In addition to that, there will two billion apps downloaded in December 2012. These stats alone show that Apple is growing in at least one area.

A lot of people like to say that Apple died with Steve Jobs. Others feel that Apple is just getting started. The truth that neither side wants to admit is that Apple is somewhere in the middle. Obviously, we’re not going to see the same type of growth and excitement that we saw when Steve Jobs began his second stint with the company. We’re also NOT going to see Apple slowly rotting away.

Apple is still an innovative company, but this innovation isn’t likely to lead to as much success as there was with previous products. Then again, we don’t know if Apple has any aces up its sleeve. What we do know is that Apple TV is due to come out later in the year. Will people pay a premium for it? Ironically, that doesn’t have as much to do with Apple as the overall economy. If the economic recovery is real, then people will have more discretionary income by the time Apple TV is released. If the economic recovery fails, then Apple TV won’t have much potential. In 2014, Apple is planning on releasing wearable computers that will come in the form of watches and sunglasses. On these devices, you will have the ability to make phone calls, text, search the web, and more. Much of this will be voice activated. It’s difficult to predict if such devices will go over well with the public. You could make a case that people would prefer to maintain their privacy while in public by typing information on a handheld device.

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In the meantime, Apple will rely on releasing new versions of old products. At this point, many people might want to know if there will eventually be more iPads or Rocky movies. In other 2013 Apple news, Apple plans on an iPhone 5 upgrade, an iOS7 preview, and an iPad Mini with Retina Display.

Let’s take a look at some important numbers to get a better idea of the big picture for Apple.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Apple is perfect. The same can be said for the balance sheet. Regardless of what types of upgrades or innovations are being planned, this is important. It’s extremely rare to find this kind of quality debt management in today’s world. Research In Motion (NASDAQ:RIMM) shows similar strength, but comparing these two companies is like comparing Joe Montana to Bernie Kosar. It’s not fair.   

Debt-To-Equity

Cash

Long-Term Debt

AAPL

0.00

$29.13 Billion

$0

HPQ

1.25

$11.30 Billion

$21.79 Billion

RIMM

0.00

$2.73 Billion

$0

 

T = Technicals on the Stock Chart Are Mixed

It feels strange to write that technical on the stock chart are mixed considering Apple has been such a big winner over the past eight years. Apple has dominated Hewlett-Packard (NYSE:HPQ) and Research In Motion when it comes to stock performance over the past three years. If you’re wondering about Google (NASDAQ:GOOG), Apple has dominated that competition as well over the past three years. However, that’s more of a future competition.

1 Month

Year-To-Date

1 Year

3 Year

AAPL

-3.70%

-0.97%

25.87%

152.00%

HPQ

10.52%

6.25%

-41.02%

-69.49%

RIMM

0.50%

0.67%

-22.10%

-81.37%

 

At $527.00, Apple is currently trading below all its averages.       

50-Day SMA

555.67

100-Day SMA

608.57

200-Day SMA

599.27

 

E = Earnings Have Been Excellent

What do you expect? This is Apple.

2008

2009

2010

2011

2012

Revenue ($)in billions

37.49

42.90

65.22

108.25

156.51

Diluted EPS ($)

6.78

9.08

15.15

27.68

44.15

 

When we look at last quarter on a YoY basis, we see an increase in revenue and earnings.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

28.27

46.33

39.19

35.02

35.97

Diluted EPS ($)

7.06

13.87

12.30

9.32

8.66

 

T = Trends Support the Industry

We’re currently in the middle of a technological revolution where innovation is running rampant. The only roadblock is that once these products run their course, the company loses a ton of momentum. Research In Motion is a perfect example. The question is whether or not Apple will continue to excite people with new products. That’s up to you to decide.

Conclusion

Even if Apple’s future products fail to excite the public and investors, this is a company that knows how to make money, manage debt, and keep margins high. Also, with operating cash flow over $50 billion, there will be many opportunities to innovate. If one product fails, Apple will simply move on to the next attempt.

Based on recent stock performance and a fading excitement for the company, Apple might be a little risky at the moment, but it’s definitely not a stock you want to bet against. Apple is currently a neutral WAIT AND SEE.

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