Running Head: APPLE, INC.

INVESTMENT RECOMMENDATION
1

Apple, Inc. (AAPL) Investment Recommendation Executive Summary

Terry Braune, Will Hope, Penny Lancor, Mary Milovic, Chadd Nelson
MBA 6050 S1-02
Professor Kunkel
February 22, 2015

APPLE, INC. INVESTMENT RECOMMENDATION

Apple, Inc. (AAPL) Investment Recommendation Executive Summary

Over the past few decades, Apple, Inc. has gone from a personal computer manufacturer
to arguably the premier designer and producer of consumer electronics. Their iOS devices such
as the iPhone, iPad, and iPod have a virtually cult-like following. Their iTunes and iCloud
service platforms extend the usability and design of their physical devices and iOS into the
World Wide Web. Given their outstanding reputation and brand in the consumer electronics
market, it is worth the time to pop the hood on Apples business and determine if it is a good
investment vehicle.
Despite its great reputation, Apple still has areas of its business that must improve. One
aspect of Apples business that is starting to struggle is in the tablet market. For the first time
ever, iPad sales shrank in 2014 (Shareholder.com, n.d.). The question remains if Apples recent
acquisitions and new product releases, such as Beats and the Apple Watch, can pick up the
revenue slack for the slowing tablet market. The new iPhone models and other large screen
smartphones are contributing to lower iPad sales (Worldwide Tablet Growth, 2014). Longer
device lifespans are also responsible for slipping sales. Additionally, smartphone competition
from Chinese firms is heating up and putting pressure on pricing and margins (Worldwide
Smartphone Growth Forecast, 2014). This could put the brakes on Apples record profits,
considering the iPhone is their best contributor. Although it has gotten the U.S. Governments
endorsement, it is yet to be seen if lingering security concerns about Apple Pay and other mobile
payment products will continue to hamper its adoption (Lev-Ram, 2015). The strengthening
U.S. Dollar is threatening eat into Apples profits as well, considering their highest growth
markets are overseas (Mikolajczak & Carew, 2015).

APPLE, INC. INVESTMENT RECOMMENDATION

Apple has a growing and extremely profitable business in its core markets. Its brand
reputation is second to none in the electronics industry and is practically woven into the fabric of
American society. The companys foray into the Internet of Things (IoT) market, beginning with
the Apple Watch, is a promising move as they attempt to get an early foothold on what is
expected to be a critical worldwide market over the next 10 years (Hughes, 2015). Acquiring
Beats Electronics and Music gives Apple high-end audio accessories and a music streaming
service that can go head-to-head with the likes of Pandora and Spotify (OMalley Greenburg,
2014). Expansion into IoT, Mobile Payment, and Streaming Audio could give Apple additional
revenue streams as tablet sales, and perhaps eventually smartphone sales, level off. Apple posted
a record profit in Q1 2015 and has a stockpile of cash it can use to invest in R&D, acquisitions,
stock buy-backs, and shareholder dividends (Balakrishnan, 2015). The company carries little
debt compared to equity and generates tremendous value for stock owners.
Apple, Inc. stock trades at somewhat of a premium. Its strong PE ratio shows that
shareholders and analysts only expect additional growth from Apple. Nearly every analysis ratio
derived from their financial statements, from their current ratio to return on equity, points to a
healthy, robust business. Given their solid financial performance, and current business
development and forecasts, AAPL stock is a sound investment.

APPLE, INC. INVESTMENT RECOMMENDATION

Project References
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Acquity Group, LLC (2014). The Internet of Things: The Future Of Consumer Adoption.
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Apple, Inc. (2015, February 10.) Form 10-K for the fiscal year ended September 27, 2014.
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Retrieved from http://www.cnbc.com/id/102376662#.

APPLE, INC. INVESTMENT RECOMMENDATION

Ben, P. (2015, January 27). China is the biggest driver of Apple's insane earnings growth.
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Hughes, N. (2015, February 13). BMO raises Apple target to $135, predicts 19M Apple Watch &
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http://www.nytimes.com/2014/11/15/technology/apple-pay-gives-glimpse-ofmainstream-appeal-for-mobile-payments.html

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Lev-Ram, M. (2015, February 13). Tim Cook: Apple Pay Launching for Government
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Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2014). Corporate finance: Core principles and
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APPLE, INC. INVESTMENT RECOMMENDATION

Shareholder.com. (n.d.). Apple Inc. Reclassified Summary Data. Retrieved from

http://files.shareholder.com/downloads/AAPL/3924937404x0x805305/b36f4888-ecaa4a84-a48c-b247e3ae8a7a/Reclassified_Summary_Data.pdf
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http://www.businessinsider.com/iwatch-sales-estimate-from-morgan-stanley-2014-2

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Young, W. (2014, December 8) SMBs Should Jump on the Mobile Payment Train in 2015.
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