Today, we will answer one simple question:

How much will $10,000 in Apple grow into in 10 years?

This is based on a quantitative-only analysis of Apple based on an April publish date. My future analyses now include quantitive analyses too.

Income

Revenue increased from $170.9B to $394.3B.

Revenue increased 8% year over year in FY2022, driven primarily by higher net sales of iPhone, Services and Mac, despite the weaker foreign revenues due to a stronger dollar.

The company announced new products in 2022:

How each product category performed:

It is worth noting that iPhone sales make up more than 50% of sales, which might pose a danger to total revenue as iPhone is a discretionary product & demand is likely to fall in this recessionary era in America, Europe, Japan & the rest of Asia Pacific.

However, the reopening of China might offset this decline. China comprises $74B of sales, which is about 19%, and this piece could increase this next year or two. Furthermore, as the US dollar is expected to weaken, the stronger Chinese renminbi may have positive impact on FX-adjusted revenue.

Regarding earnings, where we look at both EBITDA and net income, their EBITDA margin increased 1% from a decade ago.

Despite the supply chain issues and weaker foreign currencies relative to the dollar, this can be attributed to:

1. A higher gross margin percentage across their products & services.

2. "Services" taking up a bigger piece of revenue.

EBITDA hit a record high of $130.5B in FY2022, which represents an impressise 33.1% EBITDA margin, and 8.6% YoY growth.

Apple's healthy balance sheet

• Apple's EBITDA exceeded debt again in FY2022, since the last time in 2015. (Debt includes lease obligations as required under IFRS 16).

• Apple's net debt/EBITDA as of FY2022 is 0.7.

• Apple has excess cash (taken from short-term investments) of $24.6B.

• Apple has laid out how much term debt (until 2027) they will be paying back.

Apple's steady cash flow

• Cash flow from operations skyrocketed to $122.1B.

• CAPEX only takes up $10B, which is only 8.8%.

• Changes in net working capital is $1.2B.

• Apple paid down $123M of debt in FY2022.

• Result: A record free cash flow of $112.5B.

• Apple paid out $14.8B of dividends which is only 13.2%.

• In April 2022, the Company announced an increase to its Program authorization from $315 billion to $405 billion and raised its quarterly dividend from $0.22 to $0.23 per share beginning in May 2022.

• Apple has thus increased their retained earnings substantially, which can be used to for share buybacks, dividends, acquisitions, debt paydown and reinvestments for growth.

• Apple's FCFE/Share reached $6.79, which yields a FCFE yield of 4.5%.

Apple is chewing up shares

• Apple repurchased $90.2 billion of its common stock in 2022

• Shares have decreased in the past decade at an average rate of 5%.

How much can $10,000 turn into in 10 years?

• Factoring analysts' estimates and a weaker Q1 FY2023, I forecast a 3% decline in revenue, which will most likely bounce back up into a strong single digit revenue growth as the economy recovers.

• EBITDA margins stays conservative at 32%, which is lower than the 33% in FY2022.

• The right most column shows the forecasted EBITDA up till 2032.

CFO will follow EBITDA growth rates assuming Apple does not take on an insurmountable amount of debt which would otherwise impair interest expenses and derail CFO.

CAPEX as a % of CFO stays at 10% which is about the average for the past 3 years.

Regarding debt payments, Apple stated their principal payments for the next 5 years (including 2023), which will lower future cash flow, but reduce their net debt/EBITDA.

I am forecasting a 0.5 net debt/EBITDA in 2032 based on historical behaviour, which brings debt in 2032 to $121B.

I also believe Apple will continue to buyback shares due to their high retained earnings and buyback history. I am forecasting a lower buyback rate of 3%, to be conservative, compared to their historical average of 5%.

Hence, this is the stream of free cash flow I will receive.

Applying an EV/EBITDA multiple of 17, I get a stock price of $272.12 in 2032. As forward EV/EBITDA is 20.5, the multiple is expected to decline due to the rich valuation the stock market gave Apple up till today.

I will apply a 5% FCFE yield to 2032's FCFE/share, which brings the target stock price to $275.84. Again, I expect the FCFE yield to go up from 3.51% next year, to 5% in the future.

This will weigh down on the stock price.

As of 23rd April 2023, the date this article was written, Apple shares can be bought for $165.02.

Applying a 50/50 weighting to our price targets, our ultimate price target is around $274.

This is the stream of cash flow for the next 10 years (right column).

Apple will likely yield 11.08% on your money.

This may beat the stock market based on our forecasts, albeit only slightly. If you factor in risks:

• of owning an individual stock

• that Apple may face in the future

then the risk-adjusted return will be lower.