“While Apple certainly continues to perform astonishingly well with its iPhone sales, the gross margin on the iPhone does not weigh up to what its Services segment can do,” De Oliveira writes. “Given that Apple’s Services now has more than 300 million subscribers, there is clearly a huge demand to enjoy its ecosystem… To put into perspective Apple’s 300 million subscribers, we should think about Netflix’s cash-burning business model and how investors are willing to pay up $140 billion to become Netflix’s shareholders which has less than half the number of Apple’s subscribers.”
“Furthermore, given that Apple is likely to finish FY 2018 generating around $60 billion of free cash flow, together with [Apple CFO Luca] Maestri’s ambition to get to a net cash neutral position, even without much in the way of revenue growth, say around 5-6%, and investors could quite easily see Apple’s EPS number grow with a CAGR of roughly 13-15%,” De Oliveira writes. “Now, we should note, given Apple’s ability to convert its earnings to free cash flow at or just above 100%, investors should over time come to reward Apple’s EPS line with a higher multiple.”
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MacDailyNews Take: On one thing we can certainly agree: Apple is horribly undervalued, especially in relation to its so-called “peers” (so-called, because Apple is peerless).