Over the years I’ve presented why APPL was a terrific company to invest in using a model called a profit pool analysis.
- Upstream IP (Design)
- Midstream (outsourced to China)
- Downstream (Business model of iTunes & Appstore)
Bottomline when a company has IP upstream connected to downstream as a market maker that is an unfair competitive advantage. This means that Apple is a company that does something very simple, but the key to any company,
i. Low inventory holding
ii. High inventory velocity
iii. Low or negative Cash Conversion Cycle
This is where the real value of a company lies in it’s business model, in the P&L not the balance sheet. This is “Intrinsic Value”.
From my 2013 onwards on why Apple.
And Warren Buffet was asked, why invest in Apple which is a tech company and something he has traditionally stayed away from and the legendary investor said Apple was a consumer company and people who love using their products.
Simply means that Apple has a business model that enables you and me and all other fans of this company to leverage iTunes or Appstore that drives inventory velocity of content (music, apps, etc.) and this is the real value.
I have built an investing model over 20 years on how to value and the business model of a company, startup or large and this is now an algorithm. Watch this space.