Six ways Apple could shock the pessimists and regain its fast-growth profile

“Nobody knows for sure whether Apple can regain its growth-stock thrust,” Paul Whitfield writes for Investor’s Business Daily.

“In the six quarters before the death of founder Steve Jobs in October 2011, Apple grew earnings in a range of 53% to 122%,” Whitfield writes. “In the 12 quarters after his death, earnings growth topped 25% only twice, and those were the first two quarters after Jobs died.”

Whitfield wonders rhetorically, “Has Apple transitioned into something less than a true growth stock?”

Here are six ways that Apple could shock the pessimists and regain its fast-growth profile in the stock market today:
• New products
• Brand strength
• Rising margins
• Accelerating growth
• Good-lookng chart
• Continue to outperform major indexes

Read more in the full article here.

16 Comments

  1. New Products: duh?!
    Brand Strength: can’t go much higher
    Rising Margins: who is he kidding?
    Accelerating Growth: China?
    Good-looking chart: a paint job
    Continue to outperform major indices (note spelling): leading most

    1. One of the inevitable advantages of Apple eventually migrating Macs to their own A-series chips is that this a huge way for Apple to continue growing while maintaining, and even increasing, their product focus.

      A lot of people commenting on MDN don’t seem to think Apple can do it, or can’t imagine that it would help Apple improve their products. They look backward and think the A-series instruction set is somehow bound to mobile class computing, or that backward compatibility with Windows is necessary for everyone.

      But Apple could already create server level performance with A-chips just by adding cores and speeding up the clock. Mobile chip performance is HARDER than desktop performance. And Apple has made much bigger transitions between processors and OS’s in the past.

      Microsoft couldn’t do it, and failed with Windows RT, but Apple has already done this a few times.

      Apple needs to grow. It will grow. And to do it, it will have to continue breaking the mold of what people expect and taking over design of more parts of their products. A-series Macs are inevitable.

  2. If AAPL grows rapidly now, it’s just going oscillate back to shrinking the week after that, and AAPL goes back to being being a nauseating up-and-down roller coaster joy ride for day traders. No, I don’t want rapid growth. What I want is steady growth sustained until my retirement date.

    1. Agreed. Slow and steady growth makes more sense to a long-term investor. Not so much for the hedge funds. They want instant profits, although that still doesn’t explain Amazon. They’re still pouring money into Amazon based on some theoretical future profits or they’re able to make money by running the stock price up and down. Priceline makes no sense at all to me. It swings all over the place based on almost nothing I can identify.

    2. Greed.

      I agree with you. When I read statements like the following, I become appalled:

      “In the 12 quarters after his death, earnings growth topped 25% only twice…”

      Let’s put this into perspective: few if any companies the size of Apple can grow earnings of 20-25% annually. Do some research on the 10-20 largest corporations and you will see what I mean. It’s the law of large numbers at work. A small company can grow rapidly. But as companies grow in size, new products or product lines make a more incremental contribution to their growth, and numbers like 20-25% become hard to achieve.

      The simple truth is that it’s very difficult for any company, Apple included, to meet these ridiculous expectations, and to do so because a pundit who never ran a business in their life deems it to be so.

      You are left with greedy people snorting profits like lines of coke, just wanting one more to satisfy their addiction. The want to get rich quick. They speculate, not invest. But truth be told, the great investors get rich SLOWLY. Spend time reading anything by Warren Buffett, and he will make you realize that being slow, being steady, and staying invested over time, harnessing compounding (and compounded returns from reinvested dividends) are what make ordinary people wealthy.

      Yes, I love finding companies like Apple back in 1997 at a split adjusted $5 per share, or a Regeneron Pharmaceuticals 10 years ago. But it’s time in the market, e.g., finding excellent companies and staying invested in them through thick and thin. Like you, consistent earnings and cash flow growth coupled with the discipline to stay invested, and continuing to save and invest, are what will make our retirement years more secure. I don’t know about you, but I don’t want to have to survive on cat food when I’m 80 years old. And if Apple can provide steady growth, over time, we’ll all win.

  3. So the author cherry picks the best recent 6 quarters he can find, and then wonders if Apple can ever return to that glory. Apple has been shocking pessimists now for the last 20 or so years. Why would anything change?

  4. Out of curiosity, I compared the Dow index to AAPL since 1997.
    Apple up over 3000%, Dow up 178%.
    So on average AAPL has out performed the Dow 20 fold.
    Take most periods from 1997 to now and the same will be true. Every few years the stock drops down or stagnates but comes back even stronger.
    The Xmas quarter will be very strong. APPL usually goes up when the market underestimates it and is surprised by its success. Not sure if this will happen again this quarter or if the analyst have already set up the stock for a fall.
    A clue is the number of negative vs. positive commentaries. If the number of negative comments increase then it is set for a fall. Positive and the market will push investors to pump the stock up again.

    1. I agree. And your numbers bear it out. Legendary investor Peter Lynch studied large corporations and their results over time. He found that large corporations such as big pharma companies, and a tech giant like Apple, tend to have their stock charts move in surges, with often lengthy periods of the stock moving sideways.

      An example might be a pharma company like Pfizer. Every several years, it will come up with a blockbuster drug like Lipitor or Viagra, and the stock will shoot up. Then, for a number of years, the stock will move sideways between blockbusters or because of patent expiration.

      No company, including Apple, can produce a parade of category defining or market-changing new products or product lines every year. It does not work that way. So what happens is that Apple stock might move sideways for several years. And guess what? That’s okay.

      Tim Cook decided to issue dividends several years ago. The pundits sniffed and rolled their eyes. But the funny thing about dividend growth is that while on the surface it doesn’t look like much, over time, REINVESTING those dividends can lead to tremendous results.

      For example, a slow-growing company like Pfizer, Proctor and Gamble or General Mills all pay a steady and good dividend quarter after quarter, year after year. If you are smart enough to reinvest those dividends, over time, those multiply the number of shares of stock that you own.

      Why is this important? I’ll give you an example. In 10 years I patiently sat on shares of a slow growing company like Pfizer, my results DOUBLED just because of reinvested dividends compounding the number of shares I own. On top of that, even relatively modest growth by a company like Apple will multiply those returns much further.

      In short, steady returns of 15% (as opposed to the unattainable annual returns of 25% cited in the article) along with reinvested dividend compounding and dividend payout growth, over a number of years, can generate fantastic returns for an investor.

      But, as I noted in a comment above, Wall Street pundits are greedy and want it ALL NOW. On the other hand, the great investors such as Peter Lynch, Benjamin Graham or Warren Buffett are smart enough to know that you must be patient, and let your garden, like your investments, grow.

      You can’t yell at a flower or a tree and command it to grow faster – nature doesn’t work that way. Nor does successful investing.

  5. Wall Street is always pointing out failings in Apple while giving many companies performing financially worse than Apple a better premium based on some theoretical future growth factor. Most of that is based on hedge funds pumping up stocks they’re vested in to be superior in some way.

    They claim Apple is being devalued for being a one-trick pony but give Netflix some outlandish premium despite being a one-trick pony. Apple could easily break Netflix’s dominating hold on online streaming if it really wanted to. Acquiring content only requires deep pockets.

    Any weaknesses they find in Apple can easily be found in any other company. If this weren’t true then there would be dozens of companies with Apple’s financial wealth. Apple must have strengths that most companies have never dreamed of having. Wall Street never gives Apple any premium for all those Apple retail stores they have. Something like that would take years for any other company to reproduce and they probably still wouldn’t get the same results.

  6. Fix the quality control issues in iOS and OSX. The quality of the product is the true basis on any companies value. Marketing geeks disagree.
    Sorry, best product is where Apple got where it is, you may disagree, but who cares, truth is truth.

  7. I’ve stopped looking at percentages. They lie. I think I have heard this here before but to recap. Company 1’s profit was $100 last year and $200 this year equals growth 100%. Company 2’s profit was $10 billion last year and $15 billion this year equals growth 50%.

    Which company is growing faster?

    The phone companies measure growth as retention and new customers. If retail could make this measure then Apple would be growing at crazy speeds.

    Wall Street can not except that a company the size of Apple is growing at the speed of a start up. It’s unheard of therefore it must be something to not trust and the fall is eminent. Any day now Apple is going to crash and burn. Apple id doomed.

    Now you explain to me why Google, Amazon, and Microsoft are doing better then Apple according to their P/E values.

  8. Apple has reached a size where sensible growth is the key it is sustainable and and controls expectations, massive growth at this stage of its evolution is totally unsustainable and would simply move them closer to an inevitable cliff edge of unwieldiness. They have just got to the point where the market generally accepts that they are a sustainable secure business without Jobs at the helm, the last thing they need is to rock that boat.

  9. Apple is not in the business of shocking the pessimists and getting a fast growth profile for the stock market. If it were it would not require 6 ways, one would be enough and that would be simply to be:

    • bending over.

  10. and to think that I actually have to DO something to make a living while the writer of this “article” has just put a few words in such an order that it is not wrong per se….

    In other news: It is now widely believed that in order for gras to grow, it needs sunlight, soil, water and time. Scientists are really confident that the right mix of these ingredients will make the gras grow……

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