AAPL: Apple: The Law Of Large Numbers And Declining Margins Point Towards Average Stock Returns

Apple: The Law Of Large Numbers And Declining Margins Point Towards Average Stock Returns
by Tim Travis

While many market participants look at Apple Inc.'s (AAPL) growth rate and price to earnings ratios, and believe the company is incredibly cheap, I tend to believe it is closer to fairly valued. I believe the uniqueness of the company's products is fading, as it tends to happen in the consumer technology industry. While I believe it is safe to assume that net income will be greater next year than this year, I'm less sure the further we look out into the future. While I may prove to be misguided, if I were a betting man, I'd bet that adjusted for inflation net income will be less ten years from now than it is now. This is no sure thing, but the same momentum and innovation that caused the company to meteorically rise, can work against it as once fat margins, decline over time. Competitors are already engaging in practices that ultimately shift the value proposition from the original equipment manufacturer (OEM), to the consumer, via selling products below cost. If you look at this history in once-hot sectors such as flat screen TV's, PC's, and normal handsets, the gravitational impact on commoditized products profit margins can be clearly observed. The law of large numbers dictates that the growth rate must slow, so to expect anything like the recent past in terms of stock price appreciation, is overly optimistic. read more »

More on AAPL:

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