One of the most commonly reported financial metrics is the company’s price relative to its all-time high. Successful companies find themselves setting this record on a regular basis, causing investors to wonder if they should buy at the top. At the time of writing this report, An apple (NASDAQ: AAPL) It is one of those companies, with shares trading around $180, just below the record high of $182. Should investors buy at a high price? Let’s take a closer look.
Stunning growth on a large scale
With market capitalization approaching $3 trillion, Apple is still publishing results that challenge the popular belief that growth should slow as companies become the size of Apple. In the first three quarters of 2021, Apple recorded year-over-year revenue growth of 54%, 36%, and 29%, respectively. To put that in absolute dollars, during the first nine months of the year, Apple’s revenue exceeded $282 billion.
Revenue came from every part of Apple’s business, too. In the third quarter, each sales category had above 20% annual growth with the iPhone leading the way at 39%. Even better is the growth in the services category, which is mostly made up of high-margin subscription revenue. This category experienced 27% growth, a marked increase from the previous year when growth was 16%. This revenue also translates to improved profitability. In the last reported quarter, net income grew 62% and earnings per share increased from $0.73 to $1.24.
This profitability is making its way to shareholders, too. In the last reported quarter, Apple paid $3.6 billion in dividends and repurchased $20 billion of Apple stock.
cash generating machine
As seen in the chart above, Apple has steadily increased its free cash flow over the past three years. Increased revenue combined with improved margins has increased Apple’s profits over time. For example, in 2019, Apple’s gross profit margin was 38% and operating expenses 13% of total income. In 2021, these metrics improved to 42% and 12%, respectively. In the most recent quarter, the company had $191 billion in cash and marketable securities on its balance sheet. This cash generation gives Apple tremendous freedom to invest in its existing products and explore new opportunities.
While Apple is notorious for being very silent about its future plans, there is no shortage of media reports indicating that the company is working on products in augmented reality and the automotive space. Time will tell if these rumors are true, but Apple has a history of creating new product categories, and it’s clear that it has the financial resources to pursue these new opportunities.
High price, but not too expensive
Given the revenue growth and cash generation, Apple isn’t particularly expensive. At the time of writing, Apple had a price-to-earnings (P/E) ratio of 32. When compared to the competitor, the alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) Evaluation status becomes stronger. While Alphabet has a P/E ratio of just under 27, Apple’s slight valuation premium comes with better revenue growth and free cash flow margins.
It’s easy to see Apple’s stock price near its all-time high, and wonder if it’s time to buy. However, a closer look reveals powerful cash-generating, revenue-increasing and inexpensive, even relative to what its competition has to offer. For investors who believe Apple will continue to grow, innovate, and return value to shareholders, its current price should not be the reason for this investment to pass.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.