Apple was one of the best-performing stocks in 2019, with its share price soaring 89 per cent for the year to nearly 25 times earnings, according tomedia reports, underscoring the company’s resilience. As he enters the second day of 2019, Tim Cook, Apple’s chief executive, has bad news for investors. Apple’s quarterly revenue will also be lower than expected because of lower-than-expected iPhone sales, he said. At the time, it looked as if Cook and Apple were about to embark on a daunting year. The next day, Apple’s shares closed at $142.19, almost hitting a low.
Then something unexpected happened: contrary to Mr Cook’s warning, Apple’s stock then rose sharply and enjoyed its strongest year since 2009. Apple shares closed 2019 at $293.65 a share on Tuesday, up 89 percent, more than three times the 29 percent gain in the Standard and Poor’s 500-stock index.
Apple’s share price has risen nearly tenfold in the past decade. In other words, investing $10,000 in Apple stock on January 1, 2010 will have a return and dividend of $109,627 today.
In many ways, Apple represents not only the center of the stock market, but also the center of the U.S. economy. In a decade when smartphones are ubiquitous and even indispensable, its flagship iPhone has set the standard for smartphones. For most of the past decade, Apple has had the highest market capitalisation and has become a staple of many stock portfolios.
Wearables and services businesses are growing rapidly
That makes Apple’s stock rally in 2019 all the more remarkable, as the smartphone market matures to saturation point, where it has shown resilience and the ability to tap into new growth areas. iPhone revenue fell 14 per cent to $142bn in the last 12 months, but Apple also grew in other areas: iPad sales rose 16 per cent, wearables and accessories jumped 41 per cent and services revenue rose 16 per cent.
Apple has been rolling out blockbuster products like the iPhone for a long time, but wearables including the Apple Watch, AirPods and Beats headsets have helped make up for the shortfall, which now accounts for about 9 percent of Apple’s total revenue.
“We had record fourth-quarter revenue for wearables in every market in the world,” Cook said on Apple’s latest earnings conference call. Our wearables business is growing explosively, earning more than two-thirds of the Fortune 500 annually. “
Not long ago, Jim Suva, an analyst at Citi, said Apple wearables had again shown surprisingly strong momentum this holiday season.
Apple’s services have also quietly grown into $24 billion worth of businesses, accounting for 18 percent of its total sales. At an event in March 2019, Apple debuted its gaming, video (Apple TV plus) and News subscription series, as well as a new credit card tied to Apple Pay. Last fall, Apple launched a paid video streaming service to compete with Netflix, Disney, AT?amp;T and other original shows.
But Apple’s best-selling product is still the iPhone. While sales of the device have declined in 2019, it is showing signs of improvement towards the end of the year after the debut of the new iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max.
Having a range of high-end iPhones and lower price options is an important strategy for Apple to attract customers to upgrade to new phones. The budget iPhone XR has been the world’s best-selling smartphone for the past four quarters, according to Market Research.
But to revive iPhone sales, Apple needs more than just budget models. Some analysts believe the company could get the long-term boost it needs from 2020 by launching smartphones that support high-speed 5G networks.
“We think the iPhone 11 is just the current apple,” Daniel Ives, an analyst at Wedbush Securities, said in a research note last week. The starting point for the super cycle, a range of 5G smartphones to be released in September 2020, will open the floodgates to the full upgrade of the iPhone. “
Apple has weathered the challenge well, rewarding shareholders with its best performance in a while. Most of Apple’s earnings come from a stock market rally in 2019, but an 89 percent jump in the stock price in a year is enough, especially for a company with a market capitalisation of hundreds of billions of dollars. By the end of 2019, Apple’s market value is $1.3 trillion.
Price-to-earnings ratio hits 10-year high
One of the challenges Apple will face in 2020 is to manage investor expectations. Apple’s p/e price-to-earnings ratio (P/E) also rose steadily in 2019. Apple’s earnings ratio at the beginning of 2019 was just over 13 times, below the five-year average of 16.2 times, and 24.7 times by the end of 2019, the highest since 2010, according to FactSet, a market research firm.
The past price-to-earnings ratio is the price per share of a stock divided by earnings per share over the past 12 months, which investors often use as a shorthand indicator to determine the value of a stock’s investment. But this standard is not perfect because it does not take into account cash or debt and is based on past performance rather than future expectations. Apple’s forward-looking price-to-earnings ratio, divided by expected earnings per share for the next 12 months, was 21.8 times, the highest level in history.
An increase in a company’s price-to-earnings ratio could mean that investors expect future earnings per share to rise, so they are now willing to pay a higher price. However, it could also be a warning sign that the stock is overvalued. Apple’s price-to-earnings ratio is usually lower than that of its big-cap tech peers. In 2016, when Apple’s price-to-earnings ratio was about 10 times, venture capitalist Marc Anderson said Apple’s stock was “like a steel mill that is going to go out”.
While the current figure sits unusually high for Apple, it is still below the average of the Standard and Poor’s 500-stock index, which is made up of 70 companies but excludes internet giants such as Facebook, Amazon, Netflix and Alphabet. The average price-to-earnings ratio is now 26 times, up from 20 times in early 2019, according to FactSet.
Deutsche Bank analyst Jeriel Ong said a number of factors were driving Apple’s price-to-earnings ratio in 2019, including overall market trends and pessimistic expectations for Apple at the start of the year. He added that investors had previously seen the iPhone as a permanent decline, but sentiment had improved and he now expected the iPhone to grow year-on-year.
Apple’s price-to-earnings ratio remains among the lowest compared with other tech giants. Amazon’s price-to-earnings ratio for 2019 is 81.8 times, Facebook’s 32.8 times, Microsoft’s 29.7 times and Google’s parent alphabet 28.7 times.
For now, though, Apple shareholders can welcome the new year with something to celebrate: the company’s surprisingly strong performance last year proved its resilience, given the dark clouds hanging over The company at the start of the year.