Re: Red Flags and Roadblocks

[quote author=“awcabot”][

Awcabot,

Congrats on this topic discussion and comments which were referenced in bigger arenas.

AFB is one incredible forum which provides some of the best commentary on Apple, its stock, and the economy.  I am honored to be a part of this group and I want to thank all for their contributions.

As a result of this small encounter with Fortune, this topic has been picked up by other forums around the web.  Anytime we bring attention to Apple and point out both sides of the coin, it is a good thing for the company and its stock. We have been given the opportunity to further educate the general public and WS in general about one of the best companies in the world.

In reference to SJ I want to point out that we discussed this subject at length in the past.  What makes Apple great is not one person but the team around him and the dedication of its employees.  But most importantly the reason Apple is doing so well, has less to do with SJ or its many cool products. 

I believe that history will show that the iMac, OS X, its Stores, and the iPod introduced to the world what many of us have known for 20 years.  Apple rocks when it comes to a computing experience.  Once more people got a breath of this fresh air a new breed of Mac addicts was created. There is no turning back and regardless of pitfalls or roadblocks this company will always do well.

Just want to point out that in 97 after Apple was losing $1 Billion a quarter, I was ready to hang on to my Apple computer until it no longer worked. Only then out of sheer desperation I would switch to Windows. The loyalty that is created by owning a Mac is the number one reason for a bright future ahead.

I am a proud owner of my 12th Mac computer over a span of 20 years.  Recently we went on a trip and we realized that we had 6 iPods in the car with us.  Apple makes products that are fun to own and hang on to for many years.

tommo,

I think there is a guy who is plagiarizing your comments on the yahoo aapl forum.

http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_A/threadview?m=te&bn=60&tid=1652160&mid=1652160&tof=11&frt=2#1652160

One point about AAPL and appropriate multiples.
Like Cramer or not - I do - he has his lucid moments..and is one of the few folks who spill the beans on what the crooks on wall street do (he being one in the past LOL). Cramer has commented before that he is willing to pay up to double the growth rate on a forward PE for great stocks with good prospects.

I believe he is referring to sales growth, not EPS growth. From my reading his comments closely for a couple of years.

AAPL has a TTM (Trailing Twelve Month) revenue/sales growth rate of about 25%.

So, anything up to 50 forward PE is cheap according to him, as long as the growth story continues.

I agree. Certainly a 30 forward PE is not overpaying for a company with no debt, around 16 billion in cash, that has the hottest products out there other than the Wii.

You can put a target of $8 per share for 2009 on AAPL and be very conservative…even in a bad economy.

30 X 8 = $240.00. I would not be concerned about AAPL being over bought unless it crossed that point in the next 3 - 6 months. In 6 - 12 months, we’ll have 2 more QTRs of stunning numbers under the belt, and then 2010 earnings start to kick in to consideration, and everything resets again higher.

Thanks for all the good comments and I hope my previous post in this thread was taken in the humor intended. 

[quote author=“omacvi”]tommo,
I think there is a guy who is plagiarizing your comments on the yahoo aapl forum.
http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_A/threadview?m=te&bn=60&tid=1652160&mid=1652160&tof=11&frt=2#1652160

No worries - the more people who read them the better - I’m not precious about my posts; I just want to make money

When I started this post I never suspected it would spread around the web the way it has. Some bears may (mis)use it as fodder and others may copy it, but who cares—that’s a compliment to the very knowledgeable people who post here.

My intent originated from the fact that I am extremely bullish and heavily leveraged in AAPL.  I believe the company’s future is incredibly bright and I’ve put my money where my mouth is for several years running.

Some may feel defensive about this line of thought as evidenced by the need to defend the company or counter with the bullish case in this thread. But I’m already convinced of Apple’s fundamentals and continued explosive growth. Also, I think AFB is generally extremely bullish in the first place—so I sincerely hope there’s room for one single thread that explores any “what ifs” that may exist. Perhaps the mods can tolerate it if for no other reason than the fact that it may drive some traffic.

[quote author=“lumi”]When I started this post I never suspected it would spread around the web the way it has. Some bears may (mis)use it as fodder and others may copy it, but who cares—that’s a compliment to the very knowledgeable people who post here.

My intent originated from the fact that I am extremely bullish and heavily leveraged in AAPL.  I believe the company’s future is incredibly bright and I’ve put my money where my mouth is for several years running.

Some may feel defensive about this line of thought as evidenced by the need to defend the company or counter with the bullish case in this thread. But I’m already convinced of Apple’s fundamentals and continued explosive growth. Also, I think AFB is generally extremely bullish in the first place—so I sincerely hope there’s room for one single thread that explores any “what ifs” that may exist. Perhaps the mods can tolerate it if for no other reason than the fact that it may drive some traffic.

Do not worry lumi. I for one agree with the topic and encourage threads like this. I like balanced views and need them to make informed and hopefully profitable decisions. I have been an Apple bull for quite a while and always want to know the downside to a situation in which serious money is a risk.  This kind of thread gives us some things we may not have thought of in our otherwise positive perspective.

As I posted in another thread:

It doesn’t matter squat if Apple are forced into providing unlocked iPhones in some territories, providing that:

a) the price is high enough to compensate for the loss of subscriber revenue sharing (which at $1500 I think we all agree it does)

and/or

b) the phone is sold with a contract.

An 18/24 month contract is a contract is a contract. It doesn’t matter if the phone is unlocked because the contractual commitment is there for the duration of the contract, and thus the subscriber revenue sharing arrangements are safe.

People getting worried about this are not thinking this through: ultimately, if I buy a phone in France on Orange unlocked, or exercise my right to unlock it for free after the first 6 months, I have still entered into a 24-month contract to do so, and even if I never ever use my Orange SIM but instead use Vodafone, I am still going to be paying for my Orange contract for that 24 month period. And so Apple still gets paid.

So people please, stop worrying. Locked, or unlocked, net net its all the same to us In the end, the vast majority of customers will choose the easiest route to an iPhone, and that is simply to buy one with a contract from the partner network and all the free data and WiFi goodness which comes with it.

So please, stop the needless concern about this.

What about signing a two year contract, using unlocked iPhone with another carrier, then cancelling said contract and paying “Early Termination Fee”?  What happens to the ““revenue sharing” scenario then?  Just food for thought.

I’m making this a sticky topic for the better part of Thanksgiving Day.

[quote author=“lumi”]My intent originated from the fact that I am extremely bullish and heavily leveraged in AAPL.  I believe the company’s future is incredibly bright and I’ve put my money where my mouth is for several years running.

Some may feel defensive about this line of thought as evidenced by the need to defend the company or counter with the bullish case in this thread. But I’m already convinced of Apple’s fundamentals and continued explosive growth.

Its a great topic, and the only reason I posted strong rebuttals to some of the posts here is to ensure fairness and balance, particularly for the throngs of visitors and guests (thanks to the topic link from Fortune Magazine today) who won’t be as familiar with AAPL and its fundamentals as we are, and who may fail to grasp the point of the thread, which is to highlight potential risks, not identify actual, existing problems. Thanks for starting it

[quote author=“incorrigible”]What about signing a two year contract, using unlocked iPhone with another carrier, then cancelling said contract and paying “Early Termination Fee”?  What happens to the ““revenue sharing” scenario then?  Just food for thought.

No material impact from the few who will do this. Not worth worrying about any more than I worry about the value of my car possibly being affected by the odd stone chip I might pick up

[quote author=“iBuyer”] 

Congrats lumi! 

No wonder we’re getting so many page views on this topic today! 

For those who are visiting the Apple Finance Board for the first time or the first time in a while, we actively and aggressively track and analyze AAPL’s performance each trading day. Please join us each day for the best AAPL discussions on the ‘Net.

[quote author=“Tommo_UK”][quote author=“lumi”]My intent originated from the fact that I am extremely bullish and heavily leveraged in AAPL.  I believe the company’s future is incredibly bright and I’ve put my money where my mouth is for several years running.

Some may feel defensive about this line of thought as evidenced by the need to defend the company or counter with the bullish case in this thread. But I’m already convinced of Apple’s fundamentals and continued explosive growth.

Its a great topic, and the only reason I posted strong rebuttals to some of the posts here is to ensure fairness and balance, particularly for the throngs of visitors and guests who won’t be as familiar with AAPL and its fundamentals as we are, and who may fail to grasp the point of the thread, which is to highlight potential risks, not identify actual, existing problems. Thanks for starting it

These are key points.

Knowledge is power and thinking through potential risks is an important part of being an informed and confident investor. Perils exist in all businesses but Apple’s continuing investment in intellectual property and the success of the company’s retail presence IMHO makes for a bright and profitable future.

Few of the potential risks mentioned in the posts in this topic may turn out to be real concerns, but let’s get them all on the table for discussion.

[quote author=“Tommo_UK”][quote author=“iBuyer”]For example, say CY 2009 earnings are $6.  Who’s to say that the appropriate multiple is 35x or 25x?  If the consumer really slows down, would a 20x multiple be out of the question? 

Using the example of $6 earnings:

35x 2009 P/E => Target Price = 210
25x 2009 P/E => Target Price = 150
20x 2009 P/E => Target Price = 120

The problem with your supposition is, of course, that it assumes $6 for CY09, whereas everyone except idiots like Toni Sacconaghi of Bernstein (he who said AAPL has no upside to $78 in 2007) knows its going to deliver $6 in 2008.

For better or worse the concensus estimate is 5 for 08 and 6.23 for 09.  They are estimates or projections that institution follow more or less. “Everyone does NOT knows its going to deliver $6 in 2008” My point is that in times of uncertainity and bad economies, people will question the robustness of these earnings.  That is why you see investors flock to utilities and consumer staples in times of distress. 

A stock deserves a multiple relative to its growth. If Apple stops delivering that growth, the multiple will come down and the stock will collapse, and the story will be at an end.

Agreed but sometimes a stock gets credit for the growth before hand (BIDU) and sometimes not (AAPL??).  It kind of depends on the situation in the market.

If AAPL continues to grow earnings (and lets not even get started on free cash flow) at 40-60% YoY, then at its current multiple, it is truly, historically, undervalued right now.

IF. I agree that would be great but only if.  If it grew EPS 50% YoY for five year in FY 2012 the earning would be up from ~4 to ~26.  But that is a big if as the company get bigger.

I think you have to turn your argument on its head and instead (or at least also) ask: what if (as is likely) growth is maintained at this rate for the next few years, given the Mac’s surging success and the iPhone explosion world-wide? In that case we’re looking at $6 - 6.50 for 2008 and possibly $9-10 for 2009. That gives AAPL a pps of $300-350.

That is what i have done also but the question was about downside not justify the upside.  When the market turns, investors just do not pay as much for revenues that are less certain (e.g. ipods/iphones in china and japan) and will discount growth until they see the actual numbers.  Hence the multiple can contract quite a bit as well as sales forecasts etc.
That is until AAPL produce results to prove them wrong.  That could take quarters.  And for AFBer on margin or in options will be washed out way before.

Chew on that for awhile. Just pointing out that multiples go up as well as down, but in the end, all that matters is growth - and global growth at that. Continued growth = a continuing rising pps. And most importantly, if this growth does continue, the stock is cheaper historically than at any time since it was in the $50s in 2006.

Just looking to protect capital and manage risk.

BTW, Tommo, what public school did you go to?

Just trying to envisage what happens when the threats become reality. It may not be so bad…

We see Apple advancing rapidly while competitors and connected industries (cellular networks, handset makers, broadcasters, CE manufacturers, retailers, PC makers, Microsoft) seem powerless. So we are asking what can threaten Apple’s trajectory.

But suppose the bad things happen - SJ gone; iPhone revenue sharing broken; Vista more popular than XP, recession - whatever. Doesn’t that simply bring Apple no lower than level terms with the competition? How does it enable competitors to usurp Apple?

So what I’m asking is, even if one or more threats materialise, who will you back instead of Apple? My suspicion is that, though the stock price might halve, Apple would still be the one. A major factor is that Apple today barely competes with other companies, such is the level of product differentiation. Apple right now is not holding anyone back; they hold themselves back. The core business is very stable. At this moment Microsoft, Nokia, HP, Dell, Sony’s operations are barely affected by Apple. To them Apple is the mafia guy who’s just moved in next door. Nothing’s happened yet. They have no prospect to usurp Apple, because that’s a world of which they know nothing. Apple OTOH, has a possible opportunity to usurp them, but studiously avoids doing so, because there are so many opportunities that avoid confrontation. Why start a war when the enemy may be dead before the outcome matters?

The reader posts on Fortune are well worth reading along with this thread.

e.g.
[quote author=“Ashley Grayson”]What the doom scenarios miss is that while the buggy whip makers are grouching about the mistakes that Apple is sure to make. there are a zillion other product-function spaces that can enjoy the same lift but no one is looking to fill them.