After Apple announced on Monday that it will distribute its cash to investors in the form of a dividend , the Street began to question whether the company’s growth phase is over.
Traditionally, growth companies don’t pay a dividend, as they’re expected to be using their cash for strategic development. But this doesn’t mean it’s time to cash out of the technology giant, saysMichael Sansoterra, portfolio manager at Ridgeworth Investments.
“We see no reason to make a change. We own this company because we believe in the long-term prospects of it. They’re adressing additional markets,” said Sansoterra. “It’s no longer a hardware company, it’s becoming a services company.”
Notably, Ridgeworth currently owns 387,526 shares of Apple — the maximum amount it can allocate to one stock in a fund — 10 percent.
Though the stock popped more than $14 in midafternoon trading on Monday, Sansoterra thinks more buying is to come.
It’s a bullish stance, given that the stock took on $70 billion in market capin just eight days of trading.
Nevertheless, Sansoterra says, “Long term, the stock is not expensive, and will see the shareholder base expand.”
The price of Apple stock is also why Scott Sutherland, analyst at Wedbush Securities thinks Apple is a stock to hold.
“We’re estimating [Apple’s valuation] at a 13 times cash-adjusted multiple, which is very reasonable, because the company should grow earnings in excess of 20 percent over the next few years,” said Sutherland, in a separate interview on Monday.
This valuation led Sutherland to report the highest price target on the Street: $750. (The price is currently less than $600).
“Apple’s difficult to put a multiple on. From a growth perspective, it could be a trillion dollar company,” added Sutherland. “But if you look at more mature tech companies, where people talk about the law of large numbers, that multiple becomes smaller and people start wondering, can this large company keep growing?”
For Sutherland and Sansoterra, the answer is yes.
“We’re ahead of major product cycles,” said Sutherland, while pointing out that global expansion is still ahead of Apple. “They’re only 6 percent of the global market in PCs, still single digits in the smart phone market, and look at how fast the tablet market’s growing.”
Additional News: Apple to Offer $2.65 Dividend, Launch Share Buyback
Additional Views: Don’t Buy Apple for Its New Dividend: Cramer
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Disclosures:
Neither Michael Sansoterra nor Scott Sutherland personally own AAPL. Sansoterra’s firm, Ridgeworth Investments does own AAPL shares. Sutherland’s firm, Wedbush, makes a market (matched buyers and sellers) of AAPL stock.
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