Bad Apple - Is AAPL stock too high?

in this video I wanted to talk about apple apple is a recognized Company by everyone who hasn't heard of Apple they're the most valuable company on the stock market just an incredible company with a very good set of products their iPhone is a really good device it's got great apps they have a great Marketplace of apps you can download and use and their Mac business is quite quite good as well those two products have been around for a while now and what does Apple have that's new they haven't had much new stuff come out their whole VR headset is somewhat interesting but really not a product for the for many people since it's so expensive they canell the Apple car which they invested a lot of time and energy into and they just canceled it AI is really popular now and Apple's somewhat behind the rivals in I in AI other companies have really pressed forward with AI and it seems like apple is needing to C catch up to the rivals so where I'm leading is that I begin to doubt the stock price I think the company's great but it's the most expensive stock if you measure it by market cap on the stock market and if you have the highest valuation you have to have one of the best business plans one of the best plans to really do well in the future with great products expanding revenues and a business business that's really hitting on all eight cylinders I'm not quite sure Apple has that business really beginning to doubt that they're going to be able to grow right now the company's not growing I'll show that to you I'll show you the fundamentals and I don't see how they're going to begin to grow the people that really like apple that follow the stock they celebrate any incremental growth that they see in the company and to me that's it's somewhat interesting if you look at meta they're growing really well but their stock goes down you look at Google they're growing really well stock goes down even Amazon's growing quite well and they're much larger so what gives apple is in a class of their own part of it is that a really good famous stockholder Warren Buffett has owned the stock but recently he sold half his shares which was about 80 billion doar and would prefer to have that 80 billion in cash ver versus Apple stock that's not a vote of confidence in my book as I look at the stock I've been a stock holder in the past but I wasn't in apple I just didn't wasn't excited about their future wasn't excited about their products if competition enters the market to compete against that iPhone I think Apple's goingon to have their hands full in trying to fend off competitors that are maybe less expensive or even have better Innovations better technology than they do they're going to be in a world to hurt because they're the most expensive stock on the market if you measure by a market cap they have a lot of room to go down but it's really hard for them to go up you think of their market cap gez they go up 10% that's 330 some odd billion dollars of market cap growth that's a lot of dollars so I'm going to take a look at Apple look at the fundamentals and share with you what I'm seeing and at the end I'll let you know what I'm doing with the stock I'm going to try to make money from the future of Apple and I'll reveal what I'm doing in the case of of Apple stock Apple is a$ 3.35 trillion market cap company that's the biggest company on the exchange their revenue is $385 billion a lot of Revenue and they are very profitable with more than a hundred billion dollars of profit they have a PE that's 33.5 for which usually represents a company that's growing and as I'll show later this company's not growing so that's a little bit of a surprise analysts still think it's a buy and it's discounted by 99.65% we'll take a look at my valuation that I based on free cash flows and earnings per share and see what I think is the discount or premium on Apple currently there financials the revenue has not been growing they just they've hit a wall when it comes to growth they're a very big company it's very hard to grow when you're that big the law of big numbers is in effect and growing from this point is going to be very difficult I don't see a new product a new Catalyst that's going to help help them grow uh they tried the Apple C didn't work the whole virtual reality goggles they don't really sell that many units so what else is out there a phone refresh they tried it and it wasn't really well received by the market the stock price actually went down on the same day on the same day one of their competitors in Asia Huawei released their product which is a foldable phone that was quite impressive and I think Apple will continue to see more competition that tends to happen over time businesses as they mature in Industries they get more competitors and it makes it harder to grow so I think that's what's going on with growth at Apple that's my number one concern with apple is the lack of Revenue growth and the susceptibility that they have against competitors as competitors get stronger and come out with better products that's a bigger and bigger threat to Apple and their revenue streams the balance Sheet's excellent they have a high amount of cash they have cash both in the current assets as well as long-term assets where they have some long-term Investments they have really accumulated a lot of cash which is why they're buying back a lot of shares and they have less debt than they do in the combination of cash and debt so very good balance sheet very good credit rating with regards to cash flow they produce very high free cash flow and that's one of the reasons why they're so valuable they produced $14 billion dollar of free cash flow in the trailing 12 months very impressive I'll use that in my valuation based on free cash flows when I look at Apple looking at the forecast of what analysts think of the company there's 30 analysts looking at Apple which is a very popular stock and they believe that it's still discounted by a little less than 10% they're basing it on earnings per share which is $684 in the current year they're expecting those earnings to grow and they might grow but I think there's a risk that they may not and if you think about they're growing their earnings per share but not their top line which means they're not putting a lot of money into Innovation engineering product development which is a bigger risk issue if they do not create a new wave of great products they're going to be replaced so I'll use this information in my valuation as I look at earnings per share as well as free cash flow I like valuating companies based on the cash flows that I expect the compan is going to produce that's the method that most successful investors great ones like Warren Buffett Charlie Munger have used to Value companies I think it's a very accurate way of measuring value of a company I'm also going to look at earnings per share which is maybe the most popular way of valuing companies and then I'll blend the two I'm going to put more weight into the free cash flow method because I believe that's the truest measure of value the free cash flows look excellent for Apple I took their annualized rate and actually grew it by 3% to establish the first year of cash flows and then I forecast that those cash flows will grow by 3% in the future after year four they'll grow at 4% I think it's realistic again it's a very large company there is a risk that they have a couple of bad years and you have lower cash flows than expected but I'm willing to go with this forecast it might be a little optimistic I'm going to Discount all those cash flows I expect in the future by 8% and get to an intrinsic value of all those cash flows of $2.3 trillion I'm going to add the cash on the balance sheet and takeway debt to arrive at an equity value of$ 2.37 trillion current market cap is much higher at 3.3 trillion so there's a 29% premium on Apple stock earnings per share is 684 and analysts are willing to give them a PE in the 30s but I'm investing my money and I'm not going to invest in a company that has a PE that's at high without growth I am willing to look at a company that has a very good reputation brand business give them a p of 20 which is slightly above the S&P when I use those factors in a growth rate that I can stand behind I get to a premium being priced on the Apple stock with 18% so in combination the stock is being priced at a 25% premium and that's with a forecast of cash flows that's optimistic and I would say an optimistic earnings per share plan as well so as good as it guess is I think apple is being priced Too High by 25% how desirable is the Apple business I think it's very desirable but it's beginning to lose some of its value I think the advantages the iPhone has from a network effect from all the different apps that are designed around the Apple phone is quite quite impressive and I most definitely would put Apple in the green but what I would say is that if they don't come out with new products their competitors are coming after them and I would actually move them just slightly in the gray they're moving from the center of the green to going into the gray if you start seeing alternative devices that compete with that iPhone come to the marketplace and excite people to where there're switching from iPhone to let's say Samsung iPhone to the Google pixel phone or other brands that is direct competition apple and I think they could lose some of their competitive Advantage so that's where I put apple as a desirable company but they're losing some momentum I don't think many people would argue with me I think that the word is out that zero growth is a concern now if they cannot start growing I think the concerns are going to continue to grow for this stock so what am I going to do with apple well I've decided to start shorting apple and it's going to be a long-term position but I think over time the stock is going to go down and I'd like to make money on that Trend I've started a short position and basically sold shares short of Apple I've put $7,060 of capital at risk and currently the shares I'm losing about 71 of capital uh which isn't very much it's 1% I plan to add to this position and over time maybe build it up to 10 or 15,000 I think that in a year or two this stock will go down 20 to 30% so I'd like to take advantage of that now Short Selling is very very uh risky and I really want to remind you I'm just sharing my experience as an investor I'm not recommending you short Apple stock I don't recommend you buy or hold or sell it I'm just sharing my experience with you but I think think that this move will probably end up making me a good return in the form of the stock going down in value and then when I return the shares to the shareholders that let me borrow them I'll have a good yield we'll see if the stock surprises me and it goes up I'll sell it and have to take a loss but that's what I'm willing to do to take advantage of the Apple stock which I believe is really vulnerable because they're not growing they don't have exciting products and that story is beginning to be told by many others I'm not the only one thinking this way I think it's going to continue to be uh a a reason why investors are going to grow more risk averse toward the Apple stock so that's my story on Apple I hope you found it interesting and I really appreciate you watching