I love Apple, but not as an investment idea at least not right now

I love Apple, Apple is probably the company with one of the biggest moats in the world. Apple stock has been performing tremendously over the last 5 years, if you bought 100$ of Apple stock in 2018 you would have 300$ today.

State of the Bunnies

For Apple 2023 was in my opinion a bad year, the Company's total net sales were $383.3 billion and net income was $97.0 billion during 2023.

The Company's total net sales decreased 3% or $11.0 billion during 2023 compared to 2022.

The biggest fall in sales was in Mac products where sales slumped (27%), iPad and Wearables both decreased (3%) and iPhone sales fell by (2%), the only segment that did increase was Services which increased by 9%.

In 10K under the section Risk, The company cites competition as a risk or a threat to the business, which is now materializing with lower volumes and a big sales drop.

I feel that the fall can be attributed to increased competition and lack of innovation, cause the last 4 generations of iPhones are the same. If fear that in the worst case scenario, Apple doesn't start doing something new the sales will continue to stagnate.

Moat

Apple probably has the greatest moat in the world,

even though Apple is having issues with growing its revenue, its Margins have grown significantly.

Their Gross Margin went from 38% to 45% in a matter of 4 years, in the same time operating margin went from 25% to almost 31%, and their net margin increased from above 20% to 26%, this is due to two reasons, more and more revenues come from services which have a higher margin and second they have been able to increase the prices of their products, without lowering volumes, while at the same time reducing the cost of goods sold.

This is beautifully shown in their last q4 results, while the revenues increased by 2 billion, the cost of products decreased by 2 billion.

Apple has a return on invested capital of 56% for the ROIC to be considered great it needs to be above 20%.

Apple has a return on Equity of 156%, for it to be considered great it needs to be over 20%.

Apple has a return on assets of 29%, for it to be considered great it needs to be over 20%.

All the above-mentioned metrics illustrate how great Apple's business is, and why it has the greatest moat.

Debt vs Cash

Apple has a lot of cash, and a little bit more debt so that is not a problem, especially with the company generating almost 100 Billion $ of cash flow per year which could pay off Apple's debt in 1 year.

Apple debt Apple cash

Buybacks and dividends

Apple has a buyback yield of 3% per year, which means that Apple is reducing the number of shares in circulation by 3% making your share of the company 3% bigger every year without you buying another share.

While I love buybacks and don't like them at these prices, I would like it more if Apple cuts back on buybacks and increases the dividend which is currently 0,56% or 0,96 cents per share per year.

Valuation

As usual, for the valuation I used DCF analysis, I used last year's earnings per share of 6,13 cents, and as always I made 3 scenarios: normal, bad, and great, and then I weighted them (normal 60% bad 20% and great 20%). And I used the required return of 10%. I got the intrinsic value of Apple to be around 104$ per share.

But I also made a second valuation in which everything was the same the only thing that I changed was the required return which I put at 6%, and then I got the intrinsic value of 185$ per share.

Conclusion

Apple is a wonderful business may be the most wonderful in the world, but as Warren Buffet said buy wonderful businesses at fair prices, Apple right now is not at a fair price for me, but if you are comfortable with a lower potential return (around 6%), then Apple might be worth considering.

I will buy Apple only at a much lower price, which may never happen but who knows, maybe in the next recession.