This analysis allows to assign a score (BD-score) to the company by analyzing all its most important areas. From the analysis of fundamentals to the ability to outperform the market. Everything is summarized in an easy-to-read score.
The BD-score is based on a weighted assignment of 260 points based on the importance of the following 3 areas: “Financials”, “Performance” and “EPS / Analysts Expectations”. The BD-score ranges from 0% to 100% and a score above 70% is considered excellent.
Explaining the assignment of each individual score would be impossible within a single article, so to understand the logic of assigning the scores, below are the characteristics that a company must possess in order to obtain the maximum BD-score (+ 100%) :
- all key business data must grow steadily and at high growth rates (Revenue, EBITDA, Free-Cash-Flow etc.)
- must operate with high business margins (EBITDA margin, Net Margin etc.) and must be constantly improving
- must clearly outperform the market (S&P 500)
- must be in a positive short, medium and long term trend
- must always destroy analysts’ expectations in terms of EPS (Earnings-Per-Share) and the stock price must react strongly positively
- analysts must expect strong EPS (Earnings-Per-Share) growth in the next quarter
Before analyzing the individual areas specifically, there is a summary containing the key data (and BD-scores) of all the areas.
*Data in Millions of USD.
Apple Inc. (AAPL)
Apple Inc. is engaged in designing, manufacturing and marketing mobile communication and media devices, personal computers, and portable digital music players. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and Mac OS X operating systems, iCloud, and a range of accessory, service and support offerings.
Summary
Apple has an overall BD-score of 74.8%.
The excellent score was driven by Apple’s 73.6% outperformance over the S&P 500 in the past 12 months and its ability to consistently exceed analyst expectations.
The “Financials” area was the worst, mainly driven by Apple’s lack of ability to grow at the same rates with which it grew until a few years ago, but this aspect is offset by the high business margins with which it operates.
Apple currently has a Net Margin of 21.4% which has allowed it to earn $ 57 billion in Net Income over the past 12 months.
*The overall BD-score is not given by the average of the BD-scores of the individual areas because some areas have a greater weight on the total.
FINANCIALS area
The FINANCIALS area focuses on the key items of the income statement: Revenue, Gross Profit, EBITDA, Net Income and Free-Cash-Flow.
In addition, the relative margins for each of the items listed above will also be considered within the analysis, useful information for investigating the company’s ability to operate efficiently.
In this section, the company obtains the maximum BD-score if:
- shows a high and constant growth in all the key items of the income statement
- operates with high business margins and constantly improves them
The analysis period refers to the last 5 years (Annual data) and the last quarterly report released (Quarterly data).
FINANCIALS area – Annual data
The key items of the income statement during the past 5 years are analyzed within this area. The first part of this section focuses on Revenue and Gross Profit, the second part on EBITDA and Net Income and the third part on Free-Cash-Flow.
Annual data – Revenue and Gross Profit
Within this area, we focus on Revenue, Gross Profit and Gross Margin.
Revenue represent the revenue generated by the company in the last year (12 months), while Gross Profit is what remains if the “cost of sales” is subtracted from the revenue.
For example, the “cost of sales” of a company that sells cars (for example Toyota) will refer only to the costs directly incurred to produce the cars, therefore costs directly related to the production of a good or service. Instead, the Gross Margin represents the percentage of revenues that remains after considering the “cost of sales”.
Within this area, the maximum BD-score is reached if the company shows a strong and constant growth in Revenue and Gross Profit in recent years. In addition, the Gross Margin must be constantly improving and must represent a high percentage of revenue, so as to indicate a company’s ability to have a low cost of sales impact.
In the table on the left you can find the Revenue, Gross Profit and Gross Margin reported by the company in the last year, with an indication of the percentage of growth / decrease in the last 3 years (“3yr gr.%”). Instead, on the right of the table you will find a graph that represents the trend of Revenue and Gross Profit in the last 5 years, with traced the trend lines that help understand the trend of the data during the period.
*Data in Millions of USD
AAPL revenue have grown by 24,3% over the past 3 years, from $215.639 million to $267.981 million.
Gross profit is $102.127 million, up by 21,2% during the same period, while the gross margin is 38,1% of the revenue, worsened by -2,5% .
Annual data – EBITDA and Net Income
Within this area we focus on 2 of the most important metrics: EBITDA and Net Income / Loss.
To calculate the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) we start from the Gross Profit explained in the previous section and subtract the costs not directly related to production, including personnel costs, marketing and research & development costs . The Net Income represents the result of the company net of all costs, including depreciation and taxes.
Both items are also calculated as a percentage of Revenue (EBITDA Margin and Net Margin). For example, Apple has a Net Margin of 21.4%, which means that of the $ 268 billion of Revenue that it produces in 1 year, it manages to transform 21.4% of it into Net Income, or about $ 57 billion.
As in the previous section, the maximum BD-score is obtained with the EBITDA and the Net Income in strong and constant improvement over the past 5 years. In addition, the company must operate with high and increasing efficiency (EBITDA Margin and Net Margin continuously improving).
EBITDA is $77.305 million, up 9,6% over the past 3 years. EBITDA margin amounts to 28,8% of the revenue and is down -11,8% during the same period.
Net income of AAPL amounts to $57.215 million, improved by 25,2% in the last 3 years, with a net margin equal to 21,4% of the revenue, improving by 0,8% in the same period.
Annual data – Free-Cash-Flow
Within this area, we focus on Free-Cash-Flow (FCF), a measure of a company’s cash flow that takes expenses and reinvestments into account.
Also in this case, to obtain the maximum BD-score, the company must generate a high amount of cash and must be able to increase it constantly. In addition, the cash generated must represent a high percentage of the Revenue (high FCF margin).
Free-Cash-Flow generated by AAPL was $66.636 million, 27,5% better than 3 years ago. FCF margin amounts to 24,9% of the revenue and has improved by 2,6% during the same period.
FINANCIALS area – Quarterly data
Within this section we focus on the key income statement items reported by the company in the latest earnings report released.
The key figures of the latest earnings report are compared with the data reported in the same quarter of last year. This allows us to understand if the company has improved compared to last year.
A company obtains the maximum BD-score if it reports high growth rates compared to the same quarter of last year, always maintaining high business margins.
In the table on the left you will find the key data of the 2 quarters taken into consideration, highlighting the percentage of growth / decrease (“YoY gr.%”). To the right of the table are 2 graphs: The first shows the Revenue, EBITDA and Net Income of the last quarter compared to the same of 12 months earlier, while the second table shows the Gross Margin, EBITDA Margin and Net Margin, useful for understand if margins have improved compared to last year.
During the last quarter, AAPL reported $58.313 million in revenue, up 0,5% compared to $58.015 million reported in the same quarter 12 months earlier. In the same period, gross profit increased by 2,5% to $22.370 million while gross margin was 38,4% of the revenue, improved by 2,0% compared to the same quarter 12 months earlier.
EBITDA amounts to $15.639 million, a decrease of -5,0% compared to the same quarter of last year, while the EBITDA margin amounted to 26,8% of the revenue, a worsening of -5,4% . Finally, the net income for the quarter amounts to $11.249 million, a decrease of -2,7% compared to last year, while the net margin is equal to 19,3% of the revenue, a worsening of -3,2% .
PERFORMANCE area
Within the Performance area, we focus on the company’s ability to outperform the entire market.
In this section, the maximum BD-score is awarded if the company:
- clearly outperforms the entire market in the past 3 and 12 months
- is within a positive short, medium and long term trend
PERFORMANCE area – Is the company outperforming the market?
Within this section we focus on the company’s performance (blue line) to see if it outperforms the market, represented by the S&P 500 index (red line). This index is chosen as a representation of the entire market because it includes all sectors of the economy and the 500 largest market capitalization companies (with some exceptions).
The comparison refers to a short-medium term (3 months) and medium-long term (12 months) period.
Over the past 3 months, AAPL stock price has risen 16,6% compared to the -0,8% drop in the S&P 500 index, which means that AAPL has outperformed the market by 17,4% over this period of time.
Focusing on a longer period of time, the past 12 months, AAPL has risen by 79,8% , while the index has risen 6,2% , which means that AAPL has outperformed the market by 73,6%.
PERFORMANCE area – What is the direction of the trend?
Within this section, we focus on the direction of the short, medium and long-term stock price trend.
The direction of the trend is determined on the basis of the position of the stock price with respect to one of the most useful instruments, the moving averages. A moving average is calculated as the average of the prices recorded in the last n trading sessions taken into consideration.
In this analysis, we consider the presence of a positive trend of:
- short term
- if the share price is above the 20-day moving average (blue line)
- medium term
- if the share price is above the 50-day moving average (red line)
- long term
- if the share price is above the 200-day moving average (black line)
The short-term trend of AAPL is positive as the stock price is above its 20-day moving average. Looking at an intermediate period of time, the trend is positive as stock price is above its 50-day moving average and the long-term trend is positive because it is above its 200-day moving average.
EPS and ANALYSTS EXPECTATIONS area
In this section we focus on the EPS (Earnings-Per-Share) reported during the last 4 quarters. The reported EPS are compared with those estimated by analysts to verify the presence of an EPS surprise, or when the company reports higher EPS than expected. Stock price reactions are also taken into account.
In addition, there is a section dedicated to analysts’ expectations in terms of:
- EPS growth estimated in the next quarter (compared to the same quarter 12 months earlier)
- Target price and relative percentage of potential up / downside compared to the current price
In this section, the maximum BD-score is assigned if:
- the company has always reported EPS significantly higher than analyst expectations
- the company’s stock price has always reacted strongly positively during the last 4 quarters
- analysts expect EPS to grow strongly in the next quarter and believe that the company’s current price is heavily underestimated
EPS and EXPECTATIONS area – Does the company often beat analyst expectations?
The table below shows the following data for the last 4 quarters: reported EPS, estimated EPS, EPS surprise and the related stock price reaction.
The last quarter AAPL reported better EPS than analysts’ forecasts with a surprise of 22,0% , reporting EPS of $2,55 compared to the $2,09 forecast. In reaction to this earnings report, AAPL stock price reacted by closing the day with an decrease of -1,6% compared to the closing of the previous day.
Focusing on the last 4 quarters, on 4 occasions it beat analyst expectations with an average surprise of 10,6% and the stock price reacting positively on 3 occasions with an average daily variation of 1,2% .
EPS and EXPECTATIONS area – What are analysts’ future expectations?
In the table below you will find the target price set by the analysts on the company with the relative up / downside potential compared to the current price and the expected growth / decrease of the EPS in the next quarter (compared to the same quarter 12 months earlier).
Analysts have a target price of $319,17 for AAPL , which compared to the current price of $318,89 corresponds to a potential upside of 0,1% .
In addition, in the next quarter analysts estimate an EPS decrease of -11,0% over the same quarter a year earlier.
VALUATION area
The most important valuation multiples of the company are shown within this section.
A valuation multiple relates the company’s stock market capitalization (enterprise value is also used) with respect to a key metric of the company, such as Revenue, EBITDA, Net Income or Free-Cash-Flow.
The valuation multiples are used to determine the value that the market assigns to the company based, for example, on the net income generated. For example, Company A and Company B both have a market capitalization of $ 1 billion. The net profit of company A is 100 million, while the net profit of company B is 10 million. In this case, if we calculate the multiple P / E (stock market capitalization to net profit) we find that the market evaluates the company A 10 times the profits it produces (1 billion divided by 100 million), while it evaluates the company B 100 times the profits products (1 billion divided by 10 million). Based on these considerations, the market is overestimating company B compared to company A.
The values shown below do not become part of the BD-score of this analysis because I believe that valuation multiples are more useful if used within M&A (Mergers & Acquisitions) transactions rather than in determining the overvaluation of a company listed on the stock market. This is because there are many top companies (see Amazon or Netflix) that have multiples that define them as “extremely overrated”, but in reality they continue to grow year after year. Therefore, in the table below some valuation multiples are shown only for information purposes, but they are not part of the scoring calculation.
Currently AAPL is valued by the market 5 x its revenue, 18 x its EBITDA, 24 x its net profit and 21 x its free cash flow.
RISK area
The RISK area refers to a series of information relating to the company that allows to understand the level of risk associated with it.
This section shows a popular risk indicator, Beta, which measures the riskiness of an equity security by comparing it with the entire market. If the Beta has a value of 1 it means that the company has a risk very similar to that of the market, and therefore for example if the market grows by 1% the company will have a very similar variation. On the other hand, if the Beta assumes a value of 2 it means that the company has a double risk compared to the market, therefore if the market collapses by -5% the company could have a variation around -10%.
This is a statistical indicator and cannot be considered 100% reliable.
In this section I wanted to add some much more useful information on the riskiness of the company, based on the real performances (daily, weekly and monthly) that the company has really recorded during the last 3 years.
In particular, the following data are shown for a daily, weekly and monthly period of time:
- Max. Gain / Loss: the maximum increase / decrease recorded by the company (for example the maximum daily loss)
- Avg. Gain / Loss: the average increase / decrease recorded by the company (for example the average loss recorded during all the days closed in negative)
As in the case of the Beta, these data are not to be considered as 100% reliable and predictive and must be taken into consideration only for information purposes. For this reason these indicators do not become part of the BD-score also because the fact that one company is more risky than another does not necessarily mean that it is a bad thing.
During the past 3 years, AAPL gained 1,3% on average on positive days with a maximum gain of 12,0% . On negative days AAPL lost -1,3% on average with a maximum loss of -12,9% during the worst day.
Looking at the weekly data, during the best week AAPL gained 13,3% , while in the worst week AAPL lost -23,4% . Finally, looking at the data for the whole month, in the best AAPL gained 19,6% , while in the worst lost -18,4% .
Don’t miss an update, join the…
Click here to discover the other BD-score published on BullDude.com
Sources & additional info
*EPS, analysts expectations and company description by barchart.com
*charts by tradingview.com
*data in Millions of USD
Follow @BulldudeC
If you liked the article, share it on Facebook or Twitter !!!
