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Didn’t proof read, just let go

I normally don't blog it up, but 140 characters is just too short.

 

RE: Apple's Earnings Growth

Wall St type thinking is something to stay away from. It will poison your mind with "this is what the books say". Use what is real and what we know to be fact. When people use a comp on Apple for, 'what should happen in the future' -- stop listening right there. There is no comp for Apple, it doesn't exist.

 

Earnings Need to Keep Growing, Myth

Apple has no comp therefore perpetual growth need not apply. In a normal stock, yes, the company would need to keep growing gross revenue 10% Y/Y,  just to keep its EPS flat. Apple is not normal. It has software margins. Apple also dumps $13B cash in its coffers per qtr.

So, if we take a 0% growth rate from right this second (AAPL's weakest qtr) we get $52B added to the B-Sheet per year or $260B in 5 years. Oh, but we need to add in the $110B current. This equals $370B in cash. Now, suppose a company that had an operating cash flow of $72B per year accompanied a stock where 50% of its value: Was in cash. This company would have a market cap of $740B on 0% growth from 5 years past.

 

Since we used the cash from 0% growth, it was derived from somewhere right? Oh, earnings. Apple's ttm EPS is $41.01. If $41.01 ttm EPS can create a market cap of $740B in 5 years; what does earnings growth have to do with stock growth? After all, the company and the stock are two different things -- right bears?

 

Since there has never been an Apple, Wall St isn't prepared for a perpetual $41.01 EPS, yet the cash keeps climbing, $300B, $500B, $700B etc. If cash piles to the moon, what does growth have to do with anything? If Apple has $400B cash and $20 ttm EPS, you really think P/E matters? All about that cash flow.

 

Apple going from 100% growth to 0% on 5% global PC share, 10% cell phone and a tablet share that is in zygote phase is ridiculous.

 

In other words, have Wall St show me another company that has 90% FY/FY growth that went to 0% the next? There is no legitimate business which has. Why would it happen to Apple? One reason, Fabrication....

 

I knew the facts in 2007 at $202.96 and I knew the facts at $78.20 in 2009. Never sold a share. I knew what was real and what was fabricated. I'll attach a few ASYMCO graphs to bring home the point but, I leave you with,

 

Have confidence in yourself, do whats right, let your point prove you.

 

Asymco - Link 1

Asymco - Link 2

 

Travis Lewis

AAPLPAIN.COM

(Didn't proof read, just let go)

 

 

  • Merckel

    Travis, What do you make of the heavy call and put action at the $500 strike in June? Someone has noticed that approx. 25k contracts were opened on Friday, suggesting a straddle.

  • Travis, nice article but I keep looking over to Berkshire Hathaway and thinking their market cap is close to book value. It doesn’t always follow that market cap should be multiples of revenue.

    • Completely see what you are saying and not saying either of us are wrong or right. My point is AAPL is so unique. What does BRK make in profits? around $11B a year or so? AAPL makes 4x’s that. So if I do somewhat useless math, if BRK can trade at $200B mkt cap on $11B profit, AAPL should be able to be 4x’s that or $800B mkt cap.

      More to the cash side. I’m not sure of BRK’s actual cash, I think around $45B or so? so 23% of their cap is in cash. That is the big difference. AAPL is on track to have $370B cash in 5 years (all held constant) AAPL will never trade at pure cash level, it would be bot out for $0 net. It would at bare minimum trade at 30% above liquidation value. And that is worst case scenario, like world ending.

      All in all it was a hypothetical exercise as it was based on 0% growth as of yesterday, this is already proven wrong as growth is not 0% today. We don’t know what 5 years has in store, but if 0% took place, no more, no less, AAPL will be hitting $800B cap no problem.

      (BRK figures may be off, don’t track them)

      • I’m no BRK expert but def an admirer. I was playing devil’s advocate, I’m long all the way in AAPL but I’m trying to understand the market’s judgement :)

  • BadCop_NoDonuts

    You make a lot of sense, Travis! Just something I’m curioius about this week. Do you give any credence to the idea that with the weekly strike peg at $590, AAPL will move toward that by Friday expiry?

    • You know I don’t follow that way to the T but since it is within my range, for sure. $590 close would be perfect, so would $585, $595 etc. But yes, I can easily see that.

  • Anthony C

    Travis,

    I consider myself really lucky to have heard just a snippet of your talk at the conference in March. It was enough for me to make a mental note to make sure I watched the video once it was released. Once I did get the chance to watch it, it was a revelation.

    This OI methodology totally makes sense to me. Maybe it just fits my investing personality.

    Do you happen to have any recommended readings on options trading and the like so I can educate myself a little more?

    Thanks for making all this awesome information available.

    • I haven’t read many books on options. The best for education is the free webinars at options industry council or CBOE.com

    • Pk22901

      Anthony,

      What video? And share a link!

      • Anthony C

        Hey Pk,

        Sorry, the actual video is password protected, only for the attendees of the conference (I think. Travis may have to confirm.).

        However, if you just watch all the tutorials on this site, you will get the same message. Basically: why it makes sense to use OI and how to do the trades. I’ve also gotten even more useful knowledge from reviewing videos from older blog posts.

        The conference just happened to be the only time I got a chance to hear more than a passing mention of this stuff. Up to that point, I thought it was sort of conspiracy-theory-ish.

        Anthony

    • Mowens_43

      I’ll throw out a recommendation for a good book for someone new to options like myself. Options for the Stock Investor by James Bittman. He does a great job of explaining basic option concepts in an easy to understand manner.

  • Jdrizzo89

    Great. What did you mean by “comp” in first line?

  • TraderTyler

    Great article as always
    !

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