Apple (AAPL) Analysis

Apple ( symbol AAPL ) is also known as America's company. It had fallen on hard times but after Steve Jobs has taken over, it has been a different company altogether. First, there was the iMac and then a series of i* products that came out that has altered the competitive landscape and has made Apple the de-facto leader in this space. Ten years back, one couldnt have imagined iPod replacing walkman as the music player of interest to the teenagers and the general population. However, full credit to Steve Jobs and Apple for creating and revolutionizing a market from no where. In another related news item, Apple is going to shift its processor to intel processors on its desktop, laptop computers it is going to ship. This is a significant move mainly because it can reduce the Apple price points and can gain a couple of points in terms of overall market share. This is unlikely to displace windows anytime soon mainly because of the Apple business model.

Apple also announced that it had revenues of 5.7 billion in the quarter ending in December. This is a record and is massively above the average of 3.5 billion per quarter revenue it recorded in the prior quarters. The stock has huge momentum that is expected to continue in 2006. Although the best growth of Apple is behind it, it still has some momentum this year.

In this section, we will analyze Apple's balance sheet and see how it looks like. In the tech world, earning momentum is more key than revenue and profits. While Apple is definitely a great momentum play for 2006, we will analyze the balance sheet.

The analysis is based on the most recently concluded year and it doesnt include the most recent quarter. The revenues grew from 33% from 2003 to 2004 and grew again 68% from 2004 to 2005. The momentum is very strong for revenues and looks set to grow in the 40-60% in the next one year.

Net income as percentage of revenue was 9.58% in fiscal 2005. This increased from 3.33% in 2004. Although the iMacs did well in all geographies with the exception of Japan, iPod sales topped the growth chart with 200% + growth across the world. iPod Nano continued to be popular across continents and has handily beat analyst expectations on volume shipments. Expect the iMac growth number to go up even further in 2006 because of the move to intel chips for Macintosh computers and increased market share for desktop and laptop systems. Even though the migration to intel hardware is beneficial to Apple, it likely wont be cheaper than a windows system. If anything, the Apple system would be more expensive than windows and this will translate to a better bottomline for Apple. Apple will continue to lead the iPod market with forays to video capable iPods in the coming years.

Apple currently has a P/E of 52 and Apple's growth rate is going to be far higher than 60% in terms of revenue and profits for this quarter. The way things are going, Apple is likely going to continue to beat the expectations for 2006.

The Apple come back is a great American success story and it doesnt look like it is going to stop anytime soon.