Is Apple a Strong Buy?

Apple (AAPL) again posted robust quarterly results, with its fourth quarter, 2015, making it the consecutive fifth quarter of beating the analyst estimates. The fourth quarter surpassed the expectations and posted outstanding results, majorly driven by strong growth of iPhone in China segment, which continued to be a very important driver for Apple.

Apple generated revenue of $51.5 billion in the fourth quarter, 2015, an increase of 22% from $42.1 billion for the same quarter, last year, which was majorly driven by growth of iPhone in China.
Also, 62% of company’s total revenue accounted for International sales.

Moving ahead, gross margin went up to 39.9% from 38% for the same quarter, last year. In addition, the total operating expenses scaled up to $5.9 billion from $4.8 billion for the fourth quarter, 2014, driven by the increase in Research and development expenses to $2.2 billion from $1.7 billion for the previous year’s fourth quarter and increase in Selling, general, and administrative expenses to $3.7 billion from $3.2 billion for the same quarter, last year.

In addition, the operating income rose to $14.6 billion from $11.2 billion for the fourth quarter, 2014. Furthermore, the net income for the quarter, accelerated to $11.1 billion from $8.5 billion for the same quarter, last year.

Going forward, the Diluted earnings per share went up to $1.96 from $1.42 for the same quarter, last year.

Revenue on Geographical Basis…China: the continued key driver…

The greater China segment which includes Hong Kong, China and Taiwan grew 99% from the fourth quarter, 2014 and thus became the second largest segment for Apple after Americas segment. Further, China has become a key driver for Apple’s total revenue growth. Also, the total sales of iPhone rose by 120% in Mainland China from the fourth quarter, last year.

Revenue on Segmental basis…Cash flow performance

Apple generated cash flow from operating activities of $81.3 million for the year 2015 compared to $59.7 million for the previous year. Further, the cash flow in investing activities went up to $56.2 million for the year 2015 from $22.5 million for the previous year. The cash flow in financing activities went down to $17.7 million from $37.5 million for the previous year.

Valuation

Apple has trailing P/E ratio of 12.18 and forward P/E ratio of 10.40, showing the company’s future growth. The company has a PEG ratio of 0.77, showing that the company will have to pay less for its future growth earnings. Apple has Price/Sales ratio of 2.76 and Enterprise Value/ EBITDA of 7.87.

Conclusion

Bringing it to a close, Apple delivered an outstanding fourth quarter, 2015, driven majorly by China’s iPhone growth, and surpassed the estimates. The quarter posted increased revenue, gross margin and net income. The Diluted earnings per share went up to $1.96 from $1.42 for the fourth quarter, 2014. Apple in order to sustain its competitive position has acquired 15 companies in 2015.

Moving ahead to the first quarter, 2016, Apple expects revenue to be in a range of $75.5 billion -$77.5 billion, gross margin between 39%-40%, its operating expenses in a range of 6.3 billion-6.4 billion, and other expenses of around $400 million.
Published on Dec 18, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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