APPLE : Is the most expensive company in the world too expensive?

Apple Inc is the runner up in Smartphone global market share, second only to Samsung, is the smart phone market leader in the US by a margin, and is the fifth largest company in the world by revenue with almost 400 Billion Dollars. At a market capitalization of 2.3T USD, and having reached 3T a few months ago, is there more room for investors to prosper?

In Dec of 1999 Microsoft had become the world’s largest company at the time at 583 Billion USD , it later lost 60% of its value during the dot com bust. Following the dot com bubble and specifically in late 2004 it was General Electric leading the pack with a market cap of 320B USD, only to lost its dominance and almost 75% of its market value during the GFC. The list was later dominated by Exxon Mobil from 2006 to 2011 before losing the privilege to Apple as well as more than 50% of its share price.

While most of these losses in value have been recovered, except for GE, it has usually taken years for investors to regain their losses, so let’s take a lesson from history and make sure we’re not left holding the bag investing in Apple.

While there is no doubt Apple’s EPS have been increasing steadily for many years, there seems to be a significant separation between share price & EPS since mid 2019 , from 2009 till that point shares of Apple have traded at a PE ratio between 10 & 18 , however since 2019 shares have jumped to the range of 20 – 35. While this high PE ratio can be justified by the 3 year average EPS growth of 35% but is that growth sustainable?

Between Fiscal year 2016 & 2020 Apple annual revenue increase from 215B to 275B which is around 6% CAGR , similarly net income has grown from 45B to 57B over the same period. However revenue and net income grew significantly in FY 2021 to 365B & 95B , a YoY increase of 33% & 66% respectively, this big increase in my opinion is not sustainable and was mainly due to the stimulus money due to Covid.

Should net profit stabilize towards the 70B and PE drop to the 15 – 18 region which is more appropriate for a company growing its revenue and net income by 6-8% that would put the market cap in the 1T – 1.25T region , implying more than 50% downside.