Investment Idea

Autumn for Apple?

Karl O.Strøm
25 Sep 2023 | 4 min read

In September 2023, Apple is the world's largest listed company with a market value of just under USD 3,000 billion. To put this in context, you can say that if Norway had used absolutely all of its oil fund to buy Apple shares, we would have been able to afford approximately half of the company. It is the unique position within smartphones that is behind most of Apple's value at the moment, but the company also has significant income from smartwatches, iPads, notebook PCs, subscription services, software and accessories/equipment associated with all of this.

The company is run very profitably, and in addition to re-investing in its own growth, Apple has paid out dividends and made significant buybacks of its own shares. They have an impressive track record of "re-inventing" themselves, although it was under the now-deceased visionary founder and leader Steve Jobs that the biggest moves in this area were made. Today's CEO Tim Cook is undoubtedly a good leader but has largely steered the ship steadily forward without taking new visionary measures.

I see myself as a technology enthusiast and satisfied user of Apple's products. With an entire family on iPhones, AirPods, iPads and AppleTV, a few thousand kroner is sent to Apple every year. Naturally, there is a regular need to upgrade, and Apple's annual autumn show with the launch of new products has therefore been followed with interest. Here we also get to the core of the question I raise in this article. Apple is good, they are strong and are at the top of the world stock market in terms of market value. Can they keep this up?

Apple shares over 5 years

Source: Barcharts Note: Past performance is not a reliable indicator of future performance.

This year's Apple news disappointed

On the seventh of September, Apple held its launch event for autumn 2023. As the rumors had predicted in advance, it was the presentation of the iPhone 15 that got the main focus, although they also highlighted renewed AirPods headphones and three new variants of the Apple Watch. I myself haven't needed to upgrade my iPhone in a while and was curious if they could give me any good reasons to do so.

They didn't. An American trader said it perhaps best on X (formerly Twitter) that Apple had now launched the same phone 5 times. This is a pointed formulation, but I’m tempted to agree. The last major upgrade, and which was really a real lift from its predecessors, was in my opinion and that of many, the iPhone X (10). It came with a strong processor and a camera quality that covers most needs in both images and video. Furthermore, the phones' software is continuously updated, so the feeling of lagging behind is absent as long as the processor is good enough to handle the changes.

This is a topic that is well known among both economists and engineers. Once you have reached a level that is "good enough" for most people, further upgrades will often have the combination known in the technical language as rising marginal cost and falling marginal benefit. In layman's terms, this means that the upgrades cost more than they are worth. One can use the new iPhone 15 Pro's camera as a good example. Regular users are very satisfied that the phone camera takes sharp and clear images under most conditions, that they can be edited easily, and that the quality is good enough to be able to blow up the images on a large TV screen. During the launch of the new iPhone 15 Pro, Apple emphasized that the camera could now take 48 megapixel photos (that's extremely large) and that the video camera was of a quality that made it usable for professional cinematographers. It's nice, but hardly any of the users have the needs and expertise to make full use of this. Is there then any point in paying for it?

AAPL with daily candlesticks year to date. The colored curves are as shown by the colored boxes in the chart respectively. 8, 20, 50 and 100 day exponential moving averages. At the bottom of the chart, the Relative Strength Index (RSI) and bars for daily traded volume are shown. Prices in USD. It is emphasized that historical price movements are not a reliable indicator of future development. Source: Infront.

As we can see from the graph above, Apple reached its preliminary peak close to USD 200 at the end of July this year. The share then fell significantly on the presentation of the quarterly figures, and again on the aforementioned product launch.

I will not do a fundamental analysis of Apple but can comment on some relevant developments based on information available from sources on the web. The first is that the share price in relation to earnings P/E is significantly higher now than in recent years. The company now trades at a P/E of approx. 30 times the last 12 months' rolling earnings, while the same figure 1 year ago was 22.5 and as recently as 1Q 2020 it was below 20. Otherwise, a level it remained at between 2010 and 2020. Compared to ongoing earnings, the share is therefore 50% more expensive now than then. (Source: In the same period, the interest rate has risen from zero to approximately 5%, so in relation to the interest rate, Apple has become much more expensive.

The second is that the company has spent a great deal of money on share buybacks in addition to the fact that a stream of dividends has been paid out. I see it being commented that, on average, free cash flow over the past 6 years has only covered approx. 0.86% of the sum of dividends and buybacks. This has resulted in that the company, which previously had net cash on the balance sheet, now has net debt. You can do this for a while, but not forever.

That Apple has so far stopped growing is most clearly shown on the top line numbers. There are fluctuations from quarter to quarter, but the last 3 quarters have all shown a slight decline in turnover from the same period the previous year.

Apple is still the world's largest publicly traded company, it still makes amazing products with a unique market position, and it's still very profitable. But an apple is prettiest when it is ripe in autumn. The question is whether Apple manages to "reinvent" itself and create new growth, or whether it is simply the autumn of Apple that we are now seeing.

Disclaimer: After more than 20 years in the brokerage industry I started my own business in 2021. I published the book "Paleo Trading: How to trade like a Hunter-Gatherer” and launched Paleo Capital that manages a hedge fund according to the principles described in the book. I emphasize that nothing written on this blog is to be regarded as personal advice or a concrete call to take positions. Everyone must be responsible for their own decisions and familiarize themselves with the products they use.


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