Apr 22, 2021
[1 min Read]
Apple has an extremely strong company balance sheet with $3.6B in cash and cash equivalents and a quick ratio of 1.13. Additionally the company enjoyed a 21% YoY growth in its sales, reporting $111.4B in earnings in 2021 Q1. Apple also reported an EPS of 1.68, up 35% from 2020. With a beta of 1.34 the company is likely to yield positive returns over the next bull run with enough assets to coverge their liabilities.
Although the company did not provide forward guidance, its sales in its services and wearables business areas provided huge lifts to its financial position with Apple services revenue rising by 24% and wearables bringing in $13B of revenue. The above financials provide insight into Apple's brand loyalty. Even during a global pandemic, the company saw double digit increases in its revenues across a broad spectrum of operations. With numerous new Apple products coming to market in 2021, the company is prepared to profit from the economic recovery. Additionally, with operating expenses only a fraction of their revenue and a gross profit margin of 40%, the company can add to their bottom line relatively easily.
With increased network effects from the double digit growth rates in its sales in all categories, Apple generated $64B from its Apple Store sales. As such, the increasing adoption of Apple products will push this figure higher. The 16% increase in Apple's R&D costs in 2021 Q1 imply greater future product quality, potentially increasing consumer retention rate, and reduced overhead costs. Both of these will assist in increasing the company's bottom line.
To match their current valuation, Apple would have to growth their FCF by approximately 11.5%. In the past 10 years Apple has grown their FCF by 16.2% YoY and in the past 3 years have grown their FCF by 19.3% YoY. The FCF's accelerating growith rate is evidence of Apple beingly fairly valued. Given the company's extremely strong 2021 Q1 performance, the current stock price is an excellent entry point for the stock which still has mass potential for further growth in 2021.