Warren Buffett is a legendary investor and a number of his strikes make good sense. What about his place on Apple (NASDAQ: AAPL), although? The Apple share price has moved up 1 / 4 over the previous yr (and greater than tripled over 5 years).

Buffett’s offloaded billions of kilos’ value of Apple shares in recent times – however he’s additionally hung onto billions of kilos’ value.

If he reckons Apple’s overvalued, why hasn’t he offered the lot? If he thinks the price is nice sufficient to justify Apple nonetheless being his largest holding, why promote any in any respect?

I don’t know, frankly: solely Buffett does. Perhaps it’s for tax causes. Perhaps Buffett simply needs to maintain his portfolio diversified after the Apple share price soared.

However whereas I can’t learn the Sage of Omaha’s thoughts, the hovering value of the tech firm’s inventory has received me scratching my head.

Apple could also be near an ideal enterprise

In some methods, Apple has a number of the weather one would search for in a superb funding.

That’s why I’ve held it prior to now and would gladly personal the shares once more if I may purchase them at a horny price. In spite of everything, a superb funding requires (to paraphrase Buffett) shopping for into an incredible firm at a horny price.

The agency’s space of operations is in depth. Certain, it sells telephones and computer systems, tablets and watches. Nevertheless it additionally makes some huge cash promoting providers. It has a booming monetary providers operation too.

Because of a powerful model, put in person base, proprietary expertise, and the effort concerned with switching to rivals, Apple has critical pricing energy.

Final yr, it reported a web revenue of $94bn. Not solely is that an enormous sum, nevertheless it equates to a web revenue margin of 24%. That’s what pricing energy can do!

Right here’s why I’m not shopping for now

These great economics assist clarify why the Apple share price has soared over the previous 5 years (and past: its efficiency has been wonderful over a number of a long time).

Nevertheless it additionally means I must ask, as somebody who’d be completely happy to personal Apple shares: is the price I’d must pay for them at this time a smart one?

In spite of everything, as an investor, I goal to purchase shares for much less (ideally a lot much less) than I believe they’ll in the end transform value.

However Apple, with its $3.2trn market capitalisation, now has a share price-to-earnings ratio of 34.

For me, that’s too excessive to justify, so I’ve no plans to purchase Apple once more on the present price.

Buffett talks about an investor having a “margin of safety” and I don’t see that within the present price. In spite of everything, the corporate faces rising competitors from low-cost rivals.

I’m additionally not satisfied that the cash it’s been pouring into its streaming enterprise is prone to produce something just like the return on capital it’s achieved in different components of its sprawling empire.