Thanks for taking me on a trip down memory lane. I keep notes on why I made an initial purchase...primarily so I can go back when I make mistakes...to see just what was I thinking?! ;-)

Back in Sept. 2010, Apple was trading for about 18 times earnings, which was reasonable given how strongly the company was growing at the time. Today, with the stock now trading closer to 40 times earnings, much of Apple's remarkable return has been driven by P/E expansion. However, here are my notes on Apple from 2010...(comparing today's revenues, earnings and cashflows to back then also shows how strong the underlying fundamentals of the business compounded over the last 16 years.) If only I knew back then what I know now, I would have taken a bigger byte of Apple!

EXCEPTIONAL GROWTH
In the 1970’s, the late Steve Jobs co-founded Apple with his high school friend, Steve Wozniak. Two hundred units of the Apple I, an early personal computer, went on sale in July 1976 at a price of $666.66 because Wozniak liked repeating digits. From that first Apple seed, the company has continued its tradition of developing innovative products. During the past three decades, the Apple orchard has blossomed with sales expected to approach $63 billion in fiscal 2010.

Over the past five years, Apple has experienced exceptional growth with sales compounding at a 33% annual rate and net income growing even faster at a 58% annual rate. These are exceptional growth rates for a company the size of Apple and reflect the success of new product introductions such as the iPhone and iPod which enjoy incredible brand loyalty. Profit margins have more than doubled over the last five years due to favorable costs on commodity components and the ability to leverage operating expenses on the strong sales growth.

During the third fiscal quarter, sales and earnings growth accelerated with sales jumping 61% to $15.7 billion and net income climbing 78% to $3.3 billion. The quarter included the most successful launch in Apple’s history with iPhone 4. The company sold 8.4 million iPhones in the quarter representing 61% unit growth. The company launched sales of the iPad in April and during the third quarter sold 3.27 million units. Apple also sold a record 3.47 million Macs during the quarter representing 33% unit growth.

International sales accounted for 52% of the quarter’s revenues reflecting the global appeal of Apple’s products. Despite Europe’s debt woes, Apple’s sales in Europe, accounting for 26% of total sales, increased $1.7 billion or 66% during the quarter aided by strong demand for the iPad. The strongest growth in the third quarter occurred in the Asia Pacific region where sales increased $1.1 billion or 160% compared to last year and represented 12% of total sales. This superb growth was due mainly to the significant increase in iPhone revenue primarily attributable to country and carrier expansion and continued growth across existing carriers, strong demand for Mac portable and desktop systems and strength in the Australian dollar relative to the U.S. dollar.

HIGH PROFITABILITY
While management expects gross margin to decline in the fourth quarter due to flat average selling prices on new products and expected future component cost increases, the company remains highly profitable. Return on shareholders’ equity has averaged 23% over the last five years and should stay above 20% this fiscal year and next. For the fourth quarter of fiscal 2010, management anticipates revenues of about $18 billion and EPS of $3.44, representing 24% EPS growth over last year.

GROWING CASH FLOWS
Over the past five years, Apple’s free cash flow has nearly quadrupled from $2.3 billion to $9 billion last year. During the first nine months of fiscal 2010, free cash flow jumped 83% to $11.7 billion. While Apple anticipates spending $2.5 billion of cash on capital expenditures in 2010, including the opening of about 50 new Apple retail stores, the cash is piling up on Apple’s debt-free balance sheet. The company boasted $45.8 billion of cash and marketable securities on its balance sheet as of 6/30/10 equal to approximately $50 per share in cash. Apple certainly has the financial flexibility to begin returning part of their fruity cash flows to shareholders through future significant share repurchases or by planting a substantial dividend.

[I never would have guessed back then, they would have today distributed $1 trillion in dividends and share repurchases!!]