David Rolfe Comments on Apple
- By Holly LaFon
During the quarter, Apple (AAPL) was a top contributor to relative performance. Apple has been in portfolios for nearly a decade. Even though Apple is one of the most visible and widely followed businesses in our investment universe, we believe it has long suffered from the incorrect market perception that its customer relationships are largely transactional in nature. We see evidence of these "hit-driven" fears embedded in the systematic contraction of Apple's forward price-to-earnings (P/E) multiple. Apple's P/E multiple peaked in the fall of 2007 at about 38X (not long after the iPhone launched and the S&P 500 P/E peaked for that cycle) and has contracted to around 12.7X, albeit up from the 9X and 10x multiples seen earlier this year and in 2013. We earnestly admit that Apple probably does not deserve to trade at the 38X forward earnings2, yet we believe that Apple's iOS franchise and "annuity-like" ecosystem has demonstrated an exceptional ability to retain and obtain repeat customers, while commanding over 90% of the profitability generated by smartphone manufacturers--qualities we think should help the stock generate extremely attractive returns at the current multiple.
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The intrinsic value of AAPL
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third-quarter 2016 shareholder letter.
This article first appeared on GuruFocus.
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The intrinsic value of AAPL
