Should you take a slice of Apple?

By Author Charlie Gibson Mar 02, 2006

1

Print this article

The “world is in love with the iPod”, says Michael Ozanian in Forbes, and as a result Wall Street is in love with its inventor, Apple Computer (AAPL, $72.51).

Sales of the iPod are likely to top four million in the quarter that ended in December 2005, and the newly “hip brand image” of the firm has boosted sales of other products too: in fiscal year 2005 Apple sold 4.5 million computers, 38% more than the year before. This has had a miraculous effect on sales (now more than double what they were four years ago) and on the share price: in the past four years they have climbed six fold and now trade on a p/e of 46 times.

So should you buy in the expectation of good times continuing? No, says Ozanian. Sales may be good, but thanks to the fact that the iPod business makes margins of only 20% (against 30% for the computer business), profitability is falling and is likely to fall further given the price sensitivity of the music business and strong competition. Long-term Apple admirer Andrew Neff of Bear Stearns has just lowered his rating on the shares from buy to hold.

Published in Tips & advice | More articles by Charlie Gibson

Share with:More

TwitterLinkedInViadeoFacebookYahoo! BuzzredditDiggDelicious

Related articles

FREE - MoneyWeek's daily investment emailJohn Stepek

Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.