Apple: Their Dominance Is Far From Over

October 25, 2022
Information Technology

When we look at the metrics and valuations for where Apple currently stands, we arrive at one major and shocking conclusion.

Apple is undervalued.

Imagine a company being worth $2.3 trillion and still being considered “cheap”. Sounds crazy? But before you close out this page and laugh, hear us out for a second.

What’s crazy about Apple right now is how low its PEG (Price/Earnings-to-Growth) ratio is. It appears that the market is severely underestimating Apple’s ability to grow earnings.

While this is more likely due to the effects of the market selling off rather than anything directly with Apple in particular, with the stock down 25% this year, there’s plenty to be excited about outside of it just being oversold.

And what has us so excited outside of their “cheap” price? It’s what they’re doing next that they covered during their most recent conference (The Apple WWDC).

So with that context, let’s dive into it 👇

WWDC:

If you’re not familiar with Apple’s WWDC (World Wide Developer Conference), this is an annual event that the global tech giant puts on every year.

The short of it is that this event is usually used to showcase new software and technologies across their product suite.

This year’s conference was focused on upgrades across macOS Ventura, iOS 16, iPadOS 16, WatchOS 9 & the introduction of a new MacBook Air.

And while this is fairly common year over year, there were several things that surprised us:

  • The first is that Apple introduced a new M2 chip for their Mac suite of products. While we knew this was going to happen at some point it was not anticipated that it would be rolled out this quickly.
  • The second is that Apple upgraded the 13” MacBook Pro — which is the 2nd highest-selling laptop in the world. This upgrade now includes Apple’s M2 design.
  • But the third and most important update was their push into fintech. If you missed the major news, Apple is launching its own buy-now-pay-later (BNPL) option which will compete directly with Affirm, PayPal, Klarna, & others. This update can truly not be ignored. Let’s dive into what it means for them and the rest of the industry.

 

Apple’s Buy Now Pay Later:

Let us not underestimate how big of a deal this is. While Apple started as a device company, they’ve since moved into many different industries.

But fintech is one of the industries that’s been pretty much ignored up until now. Yes, they had Apple Pay and rolled out an Apple-branded card, but this move into BNPL marks a massive shift into becoming a quasi-like bank.

Essentially what they’re doing with BNPL is allowing their iPhone users to split the cost of an Apple Pay purchase into four equal installments without incurring interest or late fees. And almost overnight the adoption here will be unlike anything we’ve ever seen.

And this is because Apple Pay is accepted at 85% of US retailers and all the iPhone users who use Apple Pay will be promoted to utilize this service going forward. While this first product iteration pales in comparison to their competitors, this will be the first step for many, to start being the centerpiece of the payments industry where they can collect interest-based revenues.

What’s extremely interesting as well is that most companies need a bank to leverage these credit opportunities but Apple has $28B of cash on its balance sheet. While this is yet to be confirmed, Apple could (in theory) finance this themselves which would do 2 things:

  1. Apple could undercut its competitors by offering the same products at cheaper prices. They could do this because they don’t need a middle man, unlike Affirm & others.
  2. Apple will also be able to offer a much higher-margin product. And similar to the above because there’s no middle man, Apple can conceivably lower prices while also profiting more per transaction.

While this is still the early days, the move towards becoming a major presence in the finance industry can’t be understated.

 

Apple Outlook:

And while all of these updates are important and illustrate how Apple continues to innovate, let us not forget that Apple, sans any new products, is still literally printing money.

Via the combination of their computers, headphones, and more, Apple alone warrants enough to be the world’s most valuable company.

But add on the above plus their push into other industries (like auto, health, VR, etc.) and the peak of Apple is still very far away.

At the end of the day, we’ve held Apple for years and will continue to hold them for years further.

While people may doubt their continued dominance, we’ve seen nothing to suggest that they’re going to give up the throne anytime soon.


Price Target: $200 (48% upside)

Target Date: 6-9 Months

Current Price: 135

Rating: Overweight

Ticker: AAPL

Market Cap: $2.2T

Dividend Yield: .67%

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