Is Apple Even Worth Buying Now That the Split Is Complete?

Source: Thinkstock

Source: Thinkstock

Apple (NASDAQ:AAPL) really doesn’t need any special introductions. It is one of the greatest companies and creators of wealth in human financial history. What we do need to discuss is whether the stock is a buy at current levels post the 7 for 1 stock split. To assess this, a review of the company’s recent performance as well as a discussion of the company’s innovation and guidance looking ahead is certainly warranted.

Apple’s recent financial results for its fiscal 2014 second-quarter ended March 29, 2014 were pretty strong. The company posted quarterly revenue of $45.6 billion and quarterly net profit of $10.2 billion, or $11.62 per diluted share. These results compare to revenue of $43.6 billion and net profit of $9.5 billion, or $10.09 per diluted share, in the year-ago quarter. Gross margin was 39.3 percent compared to 37.5 percent in the year-ago quarter. International sales accounted for 66 percent of the quarter’s revenue. Further, Apple generated $13.5 billion in cash flow from operations and returned almost $21 billion in cash to shareholders through dividends and share repurchases during the March quarter. That brings cumulative payments under its capital return program to $66 billion. Tim Cook, Apple’s CEO, stated:

We’re very proud of our quarterly results, especially our strong iPhone sales and record revenue from services. We’re eagerly looking forward to introducing more new products and services that only Apple could bring to market.

But now that the stock has split, is it worth buying? The theory goes that the split will attract lower dollar investors that couldn’t pony up the recent $550-$650 range per share. I think this impact will be minimal. What I really care about is if Apple is going to continue to grow. Let’s face it: Apple is one of the greatest innovators of all time, but it has been stale of late. I worry about the margins and the innovation. The newest products must innovate. The last few versions of the iPhone have simply been rehashes of the old products. Don’t get me wrong, I am strongly considering an iPhone 6 personally, but I am concerned.

That said, I think the stock moving from $500 to $625 was a huge move and we are probably in for a pullback. I would look to get into the stock around $85 personally if we get the selloff. But looking ahead to the third-quarter, which will drive the stock up or down when the company reports, we need to be cognizant of the numbers.

Apple expects revenue between $36 billion and $38 billion and gross margin between 37 percent and 38 percent, Margins have been an issue as I have stated above. It sees operating expenses between $4.4 billion and $4.5 billion and other income of $200 million. One favorable item is a generally low tax rate of 26.1 percent.

Disclosure: Christopher F. Davis is long Apple. He has a tentativebuy rating on the stock and an eventual $97.50 price target.

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