Apple doubters need a do over
Apple’s (AAPL) stunning fourth quarter, $18 billion in profits and $74.6 billion in revenue, was the best in the company’s history. In fact, it was the best quarter any company has ever reported. Yet, the analyst community was caught off-guard. “It was pretty clear to anybody doing channel checks, or looking at the stores, they were selling a ton of this and Wall Street completely misses it,” complained Barry Ritholtz, chief investment officer, at Ritholtz Wealth Management.
In his opinion, the reason is pretty simple. “I don’t think they [analysts] understand the relationship people have with their iPhones, iPads, Macs,” he declared to Yahoo Finance. He elaborates further in this piece for Bloomberg View.
To be fair, Apple CEO Tim Cook was even taken aback. On the earnings conference call he admitted “Demand for iPhone has been staggering, shattering our high expectations,” Apple sold more than 74 million phones, primarily iPhone 6 and iPhone 6 Plus. Demand even Cook didn’t expect. “This volume is hard to comprehend.”
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For now, the blowout quarter is behind us and there is no guarantee future products like Apple Watch and iPhone 7 will see the same type of success. Even so, Apple’s track record and valuation, are reasons enough to own the stock. “The stock is still relatively inexpensive.” says Ritholtz. Apple currently trades at a P/E of 15.8X based on Yahoo Finance data. Plus Apple has a cool $178 billion in cash and marketable securities to play with.
At the end of the day, we are all really Apple investors, even if you don’t own the actual shares. According to data from FactSet analyst John Butters, Apple’s blowout quarter accounted for just over 2.5 billion or 51% of the $5 billion increase in earnings for the S&P 500 index (^GSPC).
The maker of iPhones, iPads and Macs, notes Butters, is now the largest contributor to fourth quarter earnings growth for the S&P 500 at the company level. Without Apple overall fourth quarter earnings would be nil.
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