Apple's warning signs

Take a look at the company's balance sheet, share price before jumping in

By Kim Peterson Oct 20, 2009 10:26AM

Investors should take a long, hard look at Apple (AAPL) shares before jumping into the stock, writes Brett Arends of The Wall Street Journal.


A better investment in smartphones might be in network operators, which are cheap, he writes. Those include Verizon Communications (VZ), AT&T (T) and Vodafone (VOD), which have dividend yields in the 5% to 6% range.


Arends lists a number of reasons why, even after Apple's impressive earnings report this week, investors should tread carefully.


"The case for or against investing in Apple has little to do with whether it's a good company (it is) or whether it makes good products (it does)," he writes. "It isn't even about whether the company can beat expectations. It's about whether the shares, priced at these levels, make for a sound investment."


Here's Arend's case:


Analysts: Of the 37 analysts who follow the company, 32 are bullish, three are neutral, and two say sell. That suggests the most people who might want to own Apple already do, he writes.


Share price: Apple's already at about 25 times expected earnings. The market average is 15 times earnings.


Competition: Apple's had a nice run as the dominant company in the smartphone market, but competitors like Google (GOOG) are just beginning the campaign to unseat the iPhone.


Cash: Operating cash flow rose just 6% in the last year to $10.2 billion.


Balance sheet: Subtract Apple's liabilities from assets, and you get about $22 a share. That leaves Apple's enterprise value at $150 billion, or 15 times annual operating cashflow.

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

104
104 rated 1
252
252 rated 2
457
457 rated 3
639
639 rated 4
495
495 rated 5
538
538 rated 6
704
704 rated 7
503
503 rated 8
350
350 rated 9
140
140 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.