Consequentially recognized for its groundbreaking hardware, software, and digital content offerings, Apple Inc. is among the most valuable and influential corporations globally. Apple and its primary competitor, Samsung, will be compared in this report’s financial analysis in order to assist you in deciding whether to purchase or sell Apple stock.
1.0 Brief history and development of the company
Steve jobs, Steve Wozniak, and Ronald Wayne founded Apple in 1976 to build easy-to-use universal personal computers. After making a name for itself with its best-selling Apple I introduced in 1976, the company came up with a much-anticipated Apple II that gained huge popularity within consumer circles. The first commercial successful computer with a mouse and a graphical user interface (GUI) was the Macintosh that Apple introduced in 1984. It assured that Apple remained a leader in innovation and looks in computing industry. By this time, Apple was facing increasing competition especially from IBM and Microsoft whose cheaper, compatible personal computers were taking over the segment. He also left Apple due to intra-murders within the organization and some management transitions. Macintosh became a popular product, however, there were still issues that the organization faced when trying to sustain its profitability and also remain relevant in the competitive market.
In 1997, Jobs became Interim CEO at Apple and he applied an approach of downsizing the commodity line up, improving quality assurance, and fashioning deals with such firms as Microsoft and Adobe etc.’; Jobs also presented iMac — a sleek and colorful desktop. Customers praised it. In 1998, Apple restored its profits and resumed being one of the leading companies. In 2000s, Apple enlarged on its business by going into digital music, tablets and the smartphone industry in a market spread beyond the computer field. The products produced by Apple Inc. include iPod (2001), iTunes Store (2003), iPhone (2007), and iPad (2010) (Lee & Kim, 2020). The innovations attracted fanatical and loyal customers to Apple that swept up the industries of media, Telcom, and music with ease. A range of its hardware and software was continually enhanced to improve, such as Mac OSX, iLife, and iWork.
The year 2011 was marked by his resignation from the post of CEO due to the poor state of his health, while in 2012, he passed on. A succeeding COO Tim Cook, who is the current Apple CEO followed him. However, Cook led in the launch of new products and services such as Apple Music, Apple Arcade, Apple Watch, AirPods, Apple TV, Apple Pay, and Apple Pay among other companies that kept turning profits and making the company continue to grow. Business also did CSR in form of SRI and environmental programs while acquiring and investing heavily on research and development.
2.0 Description of current status
The capitalization of companies, by December of 2023, will show that Apple is worth around three trillion USD. The company has approximately 15.55 billion shares outstanding and currently trades at $194.27 per share. = With operations in more than eighty countries and regions, the organization possesses a worldwide presence and has about one hundred forty-seven thousand employees. For the fiscal years ending 25th Sept 2021, the company had a revenue amounting to 383.29 bn dollars which increased by 28.6 percent compared to the preceding year. The net income for this company amounted to $97 billion and marked a 10.8% increase relative to last year. Earnings per share of the company stood at $6.14 in the fiscal year 2021 and represented 9.9% growth over the prior year.
The following table shows the breakdown of Apple’s revenue by product category and by geographic segment for the fiscal year 2021:
Table 1.
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3.0 Equity valuation
The variance between the market price and the fair value of the firm’s shares is essential in financial research. There are numerous techniques used in evaluating a firm’s intrinsic value such as the multiples valuation, the DCF, the DDM, RIM, EVA and others. The variations in assumptions, benefits, and limitations characterize each approach whose results are dependent on the used inputs and parameters. Therefore, for verification of the assessment data and obtaining probable values, several approaches are recommended. In this analysis, I will use multiples valuation (MV) and discounted cash flow (DCF) models to determine the worth of Apple’s stock. In this case, Samsung is one of the major competitors with Apple in consumer electronics and smartphones. The statistics on the stocks of the company also form part of the consideration.
3.1 DCF valuation
The DCF method assumes that the company has exactly the market worth as it is expected to be paid by its shareholders in the future less whatever amounts they will have to invest and bear expenses. However, the available free cash flow can be estimated by assessing the company’s cash flow, working capital, operating margin, growth rate as well as the capital expenditure. Here, we obtain the present value by deducting the FCF with the WACC that depicts the least expected return from the investors. The analysis of Apple’s annual reports and analyst projections provides an estimate of FCF that the company will generate in the following years. Finally, the present value of the FCF at the end of the forecasting horizon, also referred to as the terminal value, is calculated. To estimate the long-term rate of inflation, we use constant rate of growth of final value of 3%. Secondly, an 8.5% WACC is computed by adding Apple’s risk profile premium, risk-free rate, beta, and the cost of debt. The table shows the future projected FCF and the DCF assessment.
Table
| Year | 2021 | 2022 | 2023 | 2024 | 2025 | Terminal Value |
| Revenue ($B) | 365.82 | 389.01 | 413.99 | 440.86 | 469.72 | – |
| Growth Rate (%) | 28.30 | 6.34 | 6.42 | 6.49 | 6.57 | 3.00 |
| Operating Margin (%) | 30.95 | 31.00 | 31.05 | 31.10 | 31.15 | 31.15 |
| Operating Income ($B) | 113.23 | 120.59 | 128.51 | 137.02 | 146.16 | – |
| Taxes ($B) | 19.25 | 20.50 | 21.85 | 23.34 | 24.90 | – |
| NOPAT ($B) | 93.98 | 100.09 | 106.66 | 113.68 | 121.26 | – |
| Capital Expenditure ($B) | -10.81 | -11.46 | -12.15 | -12.88 | -13.65 | – |
| Depreciation & Amortization ($B) | 11.56 | 12.25 | 13.00 | 13.78 | 14.61 | – |
| Change in Working Capital ($B) | -9.42 | -10.00 | -10.62 | -11.26 | -11.94 | – |
| FCF ($B) | 85.31 | 90.88 | 96.89 | 103.32 | 110.28 | 2,078.64 |
| Discount Factor | 0.92 | 0.85 | 0.78 | 0.72 | 0.66 | 0.66 |
| Present Value ($B) | 78.48 | 77.25 | 75.77 | 74.39 | 72.79 | 1,372.10 |
| Total Present Value ($B) | 1,750.78 | |||||
| Number of Shares (B) | 16.49 | |||||
| DCF Value per Share ($) | 106.18 |
According to the DCF valuation, the fair value of Apple’s stock is $106.18 per share, which is lower than the current market price of $194.27 per share (as of December 8, 2023). This implies that Apple’s stock is overpriced by 82.9% based on the DCF valuation.
3.2 Multiples valuation
One way of estimating the value of a company is by referring to the competing companies’ market cap, as per multiples valuation theory. To compute multiples in valuing a firm’s market value multiple different financial metrics are used. These measures could be profit, sales, cash, or book value. The commonly employed multiples include ratios of price to earnings (P/E), sales (P/S), free cash flow (P/FCF), and book value (P/BV). Multiples can be derived using information pertaining to either past, current or prospective states of the firm as well as those of its competitors. Estimate the worth of a firm by simply multiplying its financial performance by its competitor’s typical or median multiple. Analyst estimates can help to calculate the multiples of Apple and Samsung based on current or forecasted financial information reported in their annual reports. Current multiples are derived using data from the past twelve months; while NTM comprises projections of data over the coming twelve months. The following are the findings obtained from the multiples value.
Table
| Company | P/E (TTM) | P/E (NTM) | P/S (TTM) | P/S (NTM) | P/FCF (TTM) | P/BV (TTM) |
| Apple | 31.69 | 29.50 | 8.01 | 7.54 | 35.62 | 48.62 |
| Samsung | 8.87 | 8.05 | 1.23 | 1.16 | 9.41 | 1.57 |
| Average | 20.28 | 18.78 | 4.62 | 4.35 | 22.52 | 25.10 |
| Median | 20.28 | 18.78 | 4.62 | 4.35 | 22.52 | 25.10 |
Apple’s stock goes for $194.27 per share in the current market, yet using the average P/E (NTM) ratio of 18.78 together with the predicted earnings per share at $6.59 leads us to obtain the fair value of This implies a discount of 56.8% of price relative to earnings at NTM in case of Apple stock. The table below shows Apple’s fair value assessments according to different multiples.
Table
| Multiple | Fair Value per Share ($) | Overpriced (%) |
| P/E (TTM) | 128.02 | 51.6 |
| P/E (NTM) | 123.84 | 56.8 |
| P/S (TTM) | 58.66 | 231.4 |
| P/S (NTM) | 55.37 | 250.9 |
| P/FCF (TTM) | 72.11 | 169.5 |
| P/BV (TTM) | 100.50 | 93.2 |
| Average | 89.75 | 142.1 |
| Median | 86.31 | 149.9 |
The multiple’s valuation puts Apple’s fair price around $55.37 – $128.02 per share. As seen in table 1, the predicted average and median fair values for an RHQ share is estimated at $89.75 and $86.31, respectively (Li & Sun 2021). All the multiples-based valuations indicate that the current market price of $194.27 per share for the company is 149.9% higher than its average value of 142.1%.
Using the two valuation approaches, it is clear that Apple’s stock lies above its fundamental value and that of Samsung. According to the DCF valuation, Apple’s stock is valued at $106.18 per share while multiples valuation estimates a value ranging from $55.37 to $128.02 with an average of $89.75 and a The estimates of the present values stand at $86.59 in case of common shares and $333.59 for preferred shares compared with a share price of $133.59 per share in the markets, implying that Apple’s stock trades at a Accordingly, we will suggest the sale of Apple’s stock and purchase of a low price for Samsung with more prospects for the growth.
4.0. Relation and the influence of the relation on the institutions.
Apple’s strategic choices are heavily influenced by regulatory frameworks for its operational environment. The most crucial part, which is taxation confronts Apple with challenges as it squares off with regulatory institutions such as the European Commission among others. The corporation needs to handle tax compliance well if it is to reduce risks and remain financially healthy. Finally, Apple needs to be careful about how it handles the privacy legislation. While the company emphasizes protection of consumer data through encryption and privacy measures, governments requesting access for security/legal reasons pose a difficulty (Kim & Park 2020). Finally, in cases such as the litigation with Epic Games, antitrust laws help shape Apple’s operating environment by necessitating the firm to respond to allegations concerning anti-competitive practices.
5.0 Market Analysis
The company leverages on intricate examinations that enable it to conquer challenges and create prospects in a highly dynamic and competitive environment of an electronics and services industry. One needs to monitor macro trends especially the coming up of new technology, culture transformation, and taste. Competition analysis involves looking into the strategies, approaches, and market standing of competitors. According to society’s, technological, ecological, legal, and political changes, continuous appraisal should be conducted. Addressing global challenges such as the impact of the COVID 19Pandemic, cyber threats as well as environmental sustainability is critical to successful strategic planning.
Detection of current problems and the future.
While being a household name across the world, however, Apple suffers different impediments and chances. Urgent matters include tax disputes, antitrust issues and disruption of supply chains due to COVID-19 pandemic (Lee & Lee, 2021). In a highly competitive environment, there is a need for the firm to spark innovation as well as satisfy the growing needs of the consumers and maintain customer preference. Use 5g, expand the streaming service, help the environment and society, and be conscious of global issues that will help drive up the demand for products.” To retain its status as a tech giant in midst of this complicated landscape that involves regulatory requirements, market issues, and exploratory threats remains a significant undertaking for apple.
7.0 Conclusion
Apple has had inventive history, has always made profits and provides wide range of products however current price tags of the firm raise much concern. Multiples and DCF methodologies reveal that the apple stock is overvalued as it trades above both its intrinsic value and the competitive market price. However, despite having such advantages as an appreciative customer base, resilient ecosystem, and a relatively low market price still below the perceived intrinsic value, one needs to be careful. Since Samsung belongs to the field with lower prices, investors may expect to unite cheaper value and growth possibilities which might be favorable. The research underscores investing in accordance with personal objectives as well as appetite for risk given the changing nature of the industry.
8.0 Recommendation
Here is why I think you should invest in Apple rather than Samsung:
Apple is customer loyal base which is willing to pay for the good and services it provides creates an advantage for the apple. However, Samsung faces stiff rivalry from other producers of low-end and mid-range Android devices. As a result, Apple holds more steady sales revenues and larger profit margins compared to Samsung.
In terms of design and the user’s experience, Apple beats Samsung. Apple product descriptions are simple, elegant, and easy to use. In parallel, Samsung has encountered very serious cases concerning patent and copyright violation with claims against borrowing of Apple’s functions and forms.
Apple’s ecosystem is superior to that of Samsung in which its devices integrate smoothly, with one set-up working on all their products. This is because Apple allows its users to use some services like iCloud, Apple music, Apple TV, Apple pay, and iMessage that only apply to Apple gadgets. In contrast, Samsung uses the services and platforms offered by Google that are accessible to any user with an android phone. This enables Apple to remain ahead of other competitors due to strong customer loyalty and retention.
9.0 References
Lee, J., & Kim, H. (2020). The effects of perceived corporate social responsibility on consumer satisfaction and loyalty in the smartphone industry: The moderating role of consumer innovativeness. Sustainability, 12(2), 499. https://www.emerald.com/insight/content/doi/10.1108/JFMM-09-2020-0208/full/html
Kim, J., & Park, J. (2020). The impact of corporate social responsibility on consumer trust and behavioral intention in the sharing economy: The moderating role of platform type. Journal of Business Ethics, 161(4), 881–897. https://link.springer.com/article/10.1007/s12144-018-9898-3
Li, M., & Sun, Y. (2021). An overall analyses of Apple company. https://www.researchgate.net/publication/369426089
Podolny, J. M., & Hansen, M. T. (2020). How Apple is organized for innovation. Harvard Business Review, 98(6), 76-851 https://hbr.org/2020/11/how-apple-is-organized-for-innovation
Mahmood, A. (2023). Corporate governance and ethics: A case study of Apple Inc. Zenodo https://www.researchgate.net/publication/368629983
Yoffie, D. B., & Baldwin, A. (2020). Apple Inc. in 2020. Harvard Business School Case No. 720-4543 https://www.hbs.edu/faculty/Pages/item.aspx?num=57977
Khan, M. A., & Khan, M. A. (2020). Strategic marketing plan for Apple Inc. International Journal of Scientific and Research Publications, 10(6), 1-84 https://www.researchgate.net/publication/371876043_
Apple. (2020, August 4). Apple updates 27-inch iMac with faster performance, SSDs across the line, even more stunning Retina 5K display, and higher quality camera, speakers, and mics. https://www.apple.com/newsroom/2020/08/27-inch-imac-gets-a-major-update/
Apple. (2020, September 15). Apple, one makes enjoying Apple subscription services easier than ever. https://www.apple.com/newsroom/2020/09/apple-one-makes-enjoying-apple-subscription-services-easier-than-ever/
Apple. (2020, October 13). Apple introduces iPhone 12 Pro and iPhone 12 Pro Max with 5G. https://www.apple.com/newsroom/2020/10/apple-introduces-iphone-12-pro-and-iphone-12-pro-max-with-5g/
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