|Article by Christopher Larson of Evergreen Financial Research (@tophlars)|
Shares of Apple, Inc. (NASDAQ: $AAPL) traded higher today, reaching a market cap of $1.90T, before rolling over and erasing most of the day's gains on Tuesday afternoon. Apple has been on fire recently (in a good way), after they reported better-than-expected sales this past quarter.
One of the more memorable items on Apple's balance sheet was the company's current cash position: $192.8 billion in cash on-hand, or about $45/share of cash. On this, Kaden McBride (@McBrideKade), Chief Analyst at Evergreen Capital, tweeted, "I guess you can save quite a bit on R&D when you don't innovate."
Apple, Inc. has 4,280,000,000 shares outstanding. To reach a record-breaking market cap of two trillion, shares of Apple would need to reach a price of $467.29 per share. Evergreen feels safe issuing a "Soft Sell" rating to Apple, or a 2/5 rating, based on current prices, and with respect to a short-to-mid term time frame. The recent run up was slightly concerning. The earnings report attributed to causing the run-up was good, but Apple does not give us any significant, concrete, or salient evidence that future sources of income will be created or grow.
Apple's product line has been given flak for several years now for lagging in innovation and lacking features that other brands have already implemented. We believe that one of the main factors keeping Apple's market cap up is the interdependence of the product lines. Apple is notorious for product lines that, the more a consumer has in the line, the higher the practicality and usefulness of each individual product. While this strategy works well for retaining existing buyers, it alone does not constitute a pull-factor for new consumers.
Apple's foundation is built on two main pillars: cutting-edge innovation, and making this cutting-edge innovation available and simple to use for the average consumer. We are somewhat disappointed as of late in Apple's lack of the prior. We believe that for Apple to maintain its industrial superiority, it must bring more competitively-focused, industry-leading technology breakthroughs.
The question must be asked, what has Apple done year-to-date that warrants a 41% increase? What new industries has Apple dominated; what new market share has it commandeered? Apple continues to make decent products and sell them at premium premiums, and while this is fine for a balance sheet, we do not believe it to be constituent of a healthy company, especially in respect to the whopping cash position.
Evergreen Financial Research lowers Apple, Inc.'s rating from 3/5 to 2/5, or a "Soft Sell" rating, and offers a price target of $387/share.