Why Apple Stock May Continue to Deliver for Investors – The Motley Fool

Shares of the tech giant Apple (AAPL 4.86%) have a long track record of rewarding investors. In fact, the stock outperformed the S&P500 by a wide margin over the past 10, five, three and one year periods. But can the tech giant continue to outperform over the next decade?

A close look at the stock and, more importantly, the underlying business suggests there’s likely more meaningful growth ahead for Apple shareholders. Here are four reasons why there’s a strong likelihood that Apple stocks will do well over the next decade.

1. Apple has a powerful “engine” of loyal users

Much of the analysis of Apple stocks in the media focuses on the iPhone. This, of course, is not surprising. The iPhone accounts for more than half of the company’s annual revenue and is obviously business imperative.

But the real engine of Apple’s business is the user behind the iPhone. The company’s efforts to consistently deliver an integrated ecosystem of hardware, software and services that delight customers has helped the company not only sell products, but also build a loyal customer base across many devices. actively used (over 1.8 billion at the last time Apple reported the figure).

Combining this installed base of active devices with the company’s growing services business (sales of native and third-party apps, cloud storage, AppleCare and similar offerings), Apple boasts that management increasingly calls its “engine”. An active base of loyal subscribers, which reached an all-time high in the company’s last quarter, represents a monetization opportunity for the company as Apple strives to increase customer engagement over time. time.

This engine gives Apple a reliable revenue stream in its services business that will likely grow for the foreseeable future.

2. The tech giant is more focused than its megacap peers

Second, Apple’s business is very focused, relative to some megacap peers. Amazon, for example, seems to have its hands on almost everything, including online store revenue, private label products in all sorts of categories, various tech devices, TV and music streaming services, cloud computing, grocery stores, and more. Meanwhile, the beauty of Apple’s business easily articulates through nothing more than its product segments: iPhone, Mac, iPad, services and “wearables, home and accessories”, which largely consist headphones, earphones and voice-activated speakers.

Today’s smaller product base means the company can focus its resources on just a few product lines to ensure they are as high quality and marketable as possible.

3. Apple manages its capital prudently

The tech giant also has a reputation for being a good allocator of capital. Consider that the company repurchased over $550 billion of its own stock at an average purchase price (on a payout-adjusted basis) of just $47. As Apple Chief Financial Officer Luca Maestri noted during the company’s latest earnings call, the program “has been incredibly successful.” In addition to its capital return efforts, the company has paid a dividend since 2012, increasing it each year.

In addition to its value-creating return on capital program, the company is known to be a slot nipper when it comes to acquisitions, which reduces the risk of Apple overspending on assets. Apple’s biggest public acquisition was Beats Electronics for $3 billion in 2014.

Even back then, however, it was a drop in the ocean for the company. Of course, Beats ended up playing a role in the launch of the AirPods, which was a hugely successful product line.

4. The stock’s valuation is attractive

Finally, the technology stock currently has an attractive valuation. Trading at just 23 times earnings at the time of this writing, Apple shares are cheaper on a price-to-earnings basis than both. Overseer and bet and McDonald’s. For a company with a highly focused business, a loyal customer base and a long history of exceptional capital allocation, this valuation is approaching a bargain.