Apple's warning signs
Posted
Oct 20 2009, 09:08 AM
by
Kim Peterson
Rating:
Investors should take a long, hard look at Apple (AAPL) shares before jumping into the stock, writes Brett Arends of The Wall Street Journal.
A better investment in smartphones might be in network operators, which are cheap, he writes. Those include Verizon Communications (VZ), AT&T (T) and Vodafone (VOD), which have dividend yields in the 5% to 6% range.
Arends lists a number of reasons why, even after Apple's impressive earnings report this week, investors should tread carefully.
"The case for or against investing in Apple has little to do with whether it's a good company (it is) or whether it makes good products (it does)," he writes. "It isn't even about whether the company can beat expectations. It's about whether the shares, priced at these levels, make for a sound investment."
Here's Arend's case:
Analysts: Of the 37 analysts who follow the company, 32 are bullish, three are neutral, and two say sell. That suggests the most people who might want to own Apple already do, he writes.
Share price: Apple's already at about 25 times expected earnings. The market average is 15 times earnings.
Competition: Apple's had a nice run as the dominant company in the smartphone market, but competitors like Google (GOOG) are just beginning the campaign to unseat the iPhone.
Cash: Operating cash flow rose just 6% in the last year to $10.2 billion.
Balance sheet: Subtract Apple's liabilities from assets, and you get about $22 a share. That leaves Apple's enterprise value at $150 billion, or 15 times annual operating cashflow.
