Investor valuation of stocks is complex and goes beyond stock price dynamics to make portfolio management decisions. This paper analyzes the financial performance of one company to decide whether to keep, sell or buy shares. Apple is an example, showing a significant increase in shares over the past six years (Macrotrends, 2023). The following indicators were calculated to assess the company’s profitability, solvency, efficiency, and liquidity: current ratio, debt-to-assets, debt-to-equity, net profit ratio, asset turnover, and inventory turnover ratios. Apple has noticeably taken a course towards reducing the shareholder’s equity, which, against the backdrop of growth in turnover and sales, implies an increase in the debt burden. Debt to equity has almost quintupled over the past six years, which speaks in favor of rising share prices but weighs on the company’s liquidity. Current liabilities exceeded current assets for the first time in the past two years, as evidenced by the current ratio dropping below one. All calculations are reflected in table 1.
Table 1. Apple Financials
Reduced liquidity was most likely a consequence of the 2020 crisis due to the pandemic, when supply chains and demand for products suffered, which is noticeable in the increased inventory. However, thanks to borrowed funds and competent management, Apple could maintain and even increase the growth rate of revenue and net profit. The solvency of the company, given the current challenges, is at the level of medium danger due to a decrease in equity in return for external lending, which is noticeable in the debt-to-assets ratio. Although turnover naturally increased, there is reason to believe that the stock is currently either at its peak or close to a high point in value and may fall further in the short term. The premium brand is supported by an annual product line renewal, which in turn requires new investment in R&D and innovation. Although Apple has always been a pioneer in this regard, it cannot be said that it will be able to maintain such a pace in the future.
This fact is also indicated by the relatively low net profit ratio growth rate, which means a corresponding cost increase. Given the pace of inflation and production costs due to global supply chain constraints, the company is more likely to keep profitability at a flat level, and significant changes in the balance sheet support this level rather than contribute to growth. In any case, the potential is balanced thanks to the company’s management; however, a significant decline in EPS and a return to the level of only 2017 is a negative signal for a change to a bear market after a long rise in the bull market.
The main conclusion can be considered that the shares should either be held or sold. Hold should be considered a priority scenario in the case of external market analysis and news about Apple’s achievements in terms of developing new processors or optimizing production. If such news is negatively correlated, the shares should be sold now, as the explosive potential of the last two years is most likely exhausted, and the shares should be disposed of to maximize profits. However, to diversify the portfolio and preserve the investor’s capital in the long term, Apple shares can be considered a reliable investment subject to low volatility. The consensus depends on the investor’s goals, but balancing the analysis, the main conclusion is to hold Apple shares.
Reference
Macrotrends. (2023). Apple Financial Statements 2009-2022 | AAPL. Web.