Apple Company was founded in 1976 as the specialized company in computers; however, with the passage of time, it has developed as complicated company, involved in to a large extent more than computers. The company was started in California by the co-founder Steve Jobs. In 2007, the company has entered in the mobile industry. The company now designs, markets and produces computers, mobiles, media and communication devices, music players, digital devices along with selling multiple software services, solutions for network and vendors services for digital content, software and applications (Rawnilson, 1). Some of the major products of the company include the following (Apple Inc b, 1):
iPad
iPod
Apple TV
iPhone
Mac
Display devices
Software Applications
iOS
OS X
iCloud
Apple Company also delivers digital applications and content using iTunes Apple Store, iBook Store, Mac App Store, App Store etc. The company sells its wider range of products in the international market through different channels include direct sale, online store sale, retail store sale, through wholesalers, retailers, distributors and resellers. The company presented and provide it’s financial and income information using Form 10-K. The company has strong position in the competitive market, where, it major competitor is Samsung Company.
The company always focuses on market opportunities to expand its product and service line, mainly in mobile and media communication devices. Using distinctive product line, marketing and advertising, Apple Company has successfully developed its image in the electronic industry among consumers. The company’s business policy is to ensure high quality service and buying experience to the customers. The company now owns more than 463 stores worldwide as compare 115 stores in 2005 (Satistica, 1). The company, even in the competitive industry, has been successfully performing in terms of customer satisfaction as well as financials. In 2015, the company has generated the total sales of $ 75,872 million that was increased from $ 74,599 million in 2014. The net income of the company has also increased from $ 18,024 in 2014 to $ 18,361 in 2015 (Apple Inc b, 1).
Stock Valuation using CAPM and Dividend Growth model from Stock Valuation Chapter
CAPM
CAPM is a model of pricing that is used to measure the required rate of return. Using risk free rate and the growth in the return, the model derives the required rate of return (Fischer, Edward, and Ronald, 96). The expression for the calculation is as follows:
ks= kRF + BFirm (kM – kRF), Where,
* ks = required rate of return
kRF = Risk free rate
BFirm = Beta
KM = Expected return
The table below shows the required rate of return for Apple Company using CAMP model:
The required rate of return is very high.
Dividend Growth
The value of the stock is one of the major factors for the investors to make investment decision in the particular company of the stock market. Using Dividend Discount Model, the stock price value of Apple Company is calculated.
Below is the table shows the average growth of Dividend using five trends of dividend of Apple Company:
The average dividend growth is measured for two different trends; one for three years from 2012 to 2014 and second is for five years from 2011 to 2015. The reason is the high fluctuation in the dividend payments. Using these two different average growths, the stock price is calculated as follows:
The stock price using DDM model based on three years average growth is $69.268 and based on five years average growth is $7.261.
The average growth of dividend from 2011 to 2015 is used to calculate the dividend prices of next five years from 2016 to 2020 and based on these five years dividends, the prices are calculated, where, the net price of the share is derived as $42.7698 as shown in the table below.
Considering a constant growth for the future years, it has found that the stock price of the company will be $42.76.
Dividend history going back 5 years
Dividend history of the company means a lot for the shareholders, mainly for the dividend investors. The dividend history or historical trend can be derived from the prices of dividend per share paid by the company over the period of time. The five year dividend history of Apple Company is as follows:
The above is the graph that shows the dividend paid to the investors over the period of five years. It can be seen in the graph that in 2011, the company has paid zero dividend, however, it has paid dividend from 2012 to 2015. The graph shows that the company has paid the highest dividend in 2013. In 2013, the company has paid $11.80 dividend per share as compared to $5.30 in 2012. According to the annual report of 2013, the high dividend was paid due to the increase in cash and cash equivalent and marketable securities and low foreign exchange contract expenses (Apple Inc a, 34). However, the dividend has declined in 2014 and 2015. In 2015, the company has paid $ 2.03 dividend per share. The reason for decline in the dividend per share is the stock split. Apple Company split its stock 7 of 1 share.
Recent beta and interpretation
The calculation or the measurement of the security and volatility in comparison with the market is known as Beta that is very important to determine and to analyze the stock performance of the company. The recent beta of Apple Company Inc. is 1.3556. Beta shows the volatility that means the how the company’s stock and funds will drive down or start rising if the market fluctuates. The beta greater than 1 means that Apple Company will raise by 35% if the market will up, same as it will decline by 35%, if the market will decline. The beta for the investors is become attraction based on their interest and willingness of bearing risks.
The risks in greater beta are higher but on the same side, it can offer higher return on investment (Anderson, 1). The high beta will attract those investors or shareholders that are ready to bear higher risks to get higher return on their investments. CAMP model as already found the highest required rate of return that shows the rate of return of the company will be high in future as well.
Company stock price performance
The stock prices of the company show the value and demand of the company in the stock market. The stock prices of Apple Company can be found in the graph below for the year 2015.
(Yahoo Finance, 1)
The graph above shows that the prices are fluctuated over the year. The stock prices are fluctuated as the demand of the shares of the company changes in the market. Although, the stock prices of Apple Company are varied, however, on the whole, the prices are high as maintained above 100. The stock prices of Apple Company are very high that was resulted in low purchases in the market in the year 2014. Therefore, the company has used the strategy of stock split to reduce the prices and to increase the purchases.
On the whole, the stock performance of the company shows that the company is valuable in the stock market as the prices are high when the shares are very demandable. Other than the share prices, the return on shares also attracts the investors other than the share price and share value. Therefore, to analyze the stock performance, the five year stock return is also being discussed here as shown in the graph below:
The graph above shows that the stock returns over the period of five years of Apple Company have fluctuated, where the highest decline was in the year 2013. The Apple is one of the most focused companies in the technological industry and therefore, any information about the company available in the stock market affects its overall stock performance. The revenue of the company has been influenced on its product launch for last few times and therefore, the stock returns have declined. Though, the Company has improved the returns in 2014 and at the end of 2015.
Comparison to competitor’s performance
Apple Company is facing high competition in the electronic industry as the industry is growing with the growth in the technology and its demand. The major competitors of Apple Company include Samsung, Google, Microsoft and Motorola. Apple has been involved in achieving competitive advantage by improving its performance in the market. Though, all these competitors are important, however, Samsung is the major competitor as given tough time to Apple and getting many markets over it such as China (Neilson, 1).
Samsung and Apple are involved in the legal war of brands in the mobile and technology industry for last many years. Samsung is the Korean Company, while, Apple is an American Company, However, since 2010, they have been involved in the great war, mainly for their Smartphone market (Vanity Fair, 1).
The beta of Samsung is 1.12 (Financial Times, 1). It means that Samsung is also high risky for the investors as if market will fall down, it will down 12% more than the market. But, in comparison with Apple, the Samsung is less risky as Apple will increase or decrease by 35%, where, the volatility of Samsung is 12%.
The graph below shows the dividend payments of Samsung Company and it can be seen that dividend payments of Samsung has also fluctuated over the period of five years, Same as Apple Company.
The graph below shows the stock prices of Samsung for the year 2015.
In can be seen in the graph above that the stock prices of Samsung has also been fluctuated over the year same as Apple Company. It was reported in 2014 that the Samsung is leading over Apple in the emerging countries, mainly in China. The stock prices of Samsung were declined in the third quarter of 2015; however, they have again increased at the end of the year. Both companies have been giving tough time to each other, however, the good stock performance of the both companies might be happened because of companies exist in different stock markets.
On the whole, it can be said that Apple and Samsung have similar performance in the stock market as well as their financial performance and therefore, both of these are the major competitors to each other.
Recent news
Although, Apple has high demand and value among the investors, however, from last few months, the investors of the company are worried about the stock performance of the company. The revenue and profit of the company has been increased but the investors are taking it as short term progress saying that Apple is mainly relying on its iPhone for its profitability that might hurt its revenue and value in the stock market as e per demand of iPhone will decline (Goldman, 1).
The stock prices of Apple are declining in 2016 and plunges to $65. However, many people still believes that the Apple will get the highest sales for high prices, expecting share prices to $142. Though, the expectations are directly linked with the expected sales of iPhone, it means that if the iPhone launch will not be successful, then the company can face huge decline in the stock prices (Long, 1).
Apple Company has confirmed the launch of three models of iPhone 7 in 2016 include iPhone 7, iPhone 7 Plus and iPhone 7 Pro. It is for the first time, Apple is going to launch more than two models in the same year. The company even revealed the design of the new iPhone and mentioned that it will possess dual lens system of camera. The screen sizes will be different for each model as well. Though the stock performance and financial performance of Apple is good, however, the new launch of iPhone can impact either positively or negatively on its stock performance mainly.
Works Cited page
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