After rising to a full-time high of nearly $ 138 in September, stocks were on Apple (NASDAQ: AAPL) has withdrawn a little. The stock is now trading close to $ 120 – 13% lower.
Not only is Apple down from its full-time heights, but the company has a new range of new products and even some new services that are being launched. Is this a good time for investors to get into the tech stock?
Strong business operations
While we do not yet know how well Apple performed in the recently concluded fiscal fourth quarter, as the technology company has not yet reported earnings for the period, we do know that Apple’s momentum in the previous quarter was exceptional.
Even in the midst of the challenges posed by the coronavirus, Apple’s fiscal revenue in the third quarter rose 11% year-over-year, and earnings per share Shares rose 18%. In addition, the company experienced growth in each of its product segments during the period.
Services – Apple’s second largest segment after the iPhone – remains a major catalyst for the company. Total service revenue increased in the 3rd quarter by 15% year over year.
“We had a strong performance in our digital services with record records all the time in the App Store, Apple Music, video and cloud,” Apple CEO Tim Cook said in the company’s fiscal earnings call in the third quarter.
Looking ahead, Apple has two more services that it is launching to further strengthen the lucrative segment. Apple Fitness +, en Peloton-like virtual fitness service, launches late this year. In addition, a comprehensive offering of Apple’s original services (including Apple TV +, Apple Music, iCloud and more) called Apple One will be launched sometime this fall.
Then there is all the new hardware that Apple has launched recently and will continue to launch in the coming weeks. In September, Apple updated its Apple Watch, iPad and iPad Air. Then in October in October, Apple announced a new smart speaker, iPhone 12, iPhone 12 Pro and iPhone 12 Pro Max. These new products are meant to help Apple’s key hardware business grow nicely.
An expensive valuation
Although Apple stock has fallen about 13% from its full-time high, the technology company’s valuation is still quite expensive. Apple has a price-to-earnings ratio of 37. This valuation measurement looks more reasonable compared to next year’s earnings estimates. Apple is currently trading around 32 times analysts’ average forecast for next year’s earnings.
But this is still a big premium to pay for a business that is growing at Apple’s speed. Analysts expect, on average, that Apple’s earnings per Shares will be composed at an average annual rate of approx. 13% over the next five years – impressive, but not fantastic, seen alongside the stock’s current valuation. In short: The stock is not trading at a meaningful discount today.
On the other hand, high-quality market leaders rarely trade at levels that make them look like a steal.
So is Apple stock a buy, sell or hold? I would say it is a purchase, albeit in moderation.
Given Apple’s long history of innovation and customer loyalty, shares in this premium technology company may still be worth buying for this valuation – as long as the stock is a small part of your portfolio. There is simply too little safety margin for things to go wrong to make Apple inventory a great position. Further, with an expensive valuation like this, Apple investors should be willing to endure a lot of volatility in the coming years.