Apple: Does size matter?

“Intrepid Investor argues that Apple (with a market cap of $700 billion) might be the inferior investment in comparison to a basket of other companies valued at $700 billion,” Jonathan Weber writes for Seeking Alpha. “This basket consists of Cisco, Intel, Taiwan Semiconductor, Qualcomm, SAP, Baidu and Hewlett-Packard. As you can see those are seven tech companies as well, so the comparison between the two baskets seems fair.”

“The author argues that Apple will likely be the inferior investment due to the fact that things tend to stop growing once they reach a certain size and that the basket of the seven other tech companies is a better choice due to the fact that those seven have a higher total amount of retained earnings on their balance sheet,” Weber writes. “His first point is obviously true – a company will never be able to grow (its revenues) at a pace higher than global GDP growth forever, since otherwise it would one day be responsible for every dollar generated in the whole world. ”

“This however does not mean that Apple will not be able to grow at an above average pace for the next years, and neither does it mean that Apple’s shares will not see continuing growth over time,” Weber writes. “Despite being the biggest company in the world by market capitalization (using nominal dollar values), Apple’s share of global GDP is still very small and could easily grow further: Apple’s trailing revenues of $210 billion make up just a small portion of the global GPD of $76 trillion (that’s 76,000 billion, or more than 360 times Apple’s revenues). In addition to the fact that Apple could easily grow its revenues further (and there are other companies with higher revenues, e.g. Wal-Mart, Apple’s market cap also could grow through multiple expansion (as Apple’s P/E multiple is below market average). And lastly, market cap expansion is not even necessary for share price gains. As Apple keeps buying back a lot of shares over time share prices (and thus the value of an investor’s investment) increase, even if the market capitalization remains flat.”

Much more in the full article – recommended – here.

MacDailyNews Take: Apple is just getting started. We haven’t seen anything, yet!

10 Comments

  1. Uh yeah, just poke around in settings > general > accessibility, then when you’ve learned just enough to prank your friends, ask some blind people who use Apple products to be successful in the digital world if Apple could get any bigger. You’ll most likely hear a resounding “Hell yeah!”

    Sent from my iPhone

    >

  2. One has to wonder if big investors have already given up on Apple. The stock has been running in reverse since February and that’s with decent quarterly earnings. Apple’s internal value has grown quite well the entire year, but Wall Street’s value has decreased significantly. I look at Facebooks fundamentals compared to Apple’s and I have to say WTF. There couldn’t be an easier way to get rich. I don’t even have a clue to where Facebook’s value is coming from except a big-ass P/E. And WS is boosting FB’s target prices even higher while Apple goes nowhere.

    Well, the saying goes it’s better to be lucky than smart. Apple appears to have outsmarted itself as an investment.

    1. “Decent” quarterly earnings? I wouldn’t exactly characterize some of the greatest corporate quarters in world history merely “decent,” macnificentseven48.

  3. Doofus writer says “a basket of other companies valued at $700 billion,” Jonathan Weber writes for Seeking Alpha. “This basket consists of Cisco, Intel, Taiwan Semiconductor, Qualcomm, SAP, Baidu and Hewlett-Packard.”

    The only problem is those seven companies combined do not equal Apple’s value. Do your homework doofus blogger.

  4. No, size doesn’t mater (unless you are so small, no one notices you) creativity and taste within corporate culture that allows the creativity to grow . . . in the right direction, is what counts.

  5. I heard on the news this morning that Android phones make up 80% of the base. If this is true then there’s a huge potential for growth for Apple. I live in Honolulu and it seems like iPhone makes up 90%.

    1. If Apple ever decided to go overdrive on PC war 2.0 they could probably get their Mac revenues up to a good fraction of iPhone revenues, which would be a noticeable bump for the whole company.

      A $500 MacBook Air would destroy most of the profits left in the PC market.

      NOT saying Apple should do this, or chase marketshare at all, just that if I were Microsoft, Dell or HP I would be praying that Apple didn’t do this.

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