After rising to an all-time high of nearly $ 138 in September, shares Apple (NASDAQ: AAPL) backed away a little. The stock is trading near $ 120 – 13% lower.
Not only has Apple dropped from an all time high, but the company has a fresh queue of new products and even some new services to launch. Is this a good time for investors to get into tech stock?
Strong business momentum
While we do not yet know how well Apple has performed in its finished financial quarter since the tech company has not yet reported earnings for the season, we do know that Apple’s momentum in the previous quarter was extraordinary.
Even amid the challenges posed by the coronavirus, Apple’s third-quarter fiscal revenue jumped 11% year over year and revenue per share increased by 18%. In addition, the company saw growth in each of its product segments over time.
Services – Apple’s second largest segment after the iPhone – continues to be a major catalyst for the company. Total revenue in fiscal Q3 services rose 15% year over year.
“We have strong performance in our digital services with revenue records all the time in the App Store, Apple Music, video, and cloud,” Apple CEO Tim Cook said in calling revenue. third-quarter company revenue.
In the future, Apple will have two more services coming soon to further boost the profitable segment. Apple Fitness +, a Peloton-Like a virtual fitness service, launched recently. Also, a bundle of Apple native native services (including Apple TV +, Apple Music, iCloud, and more) called Apple One is launching this fall.
Then there are all the new hardware that Apple recently launched and will continue to launch in the coming weeks. In September, Apple refreshed the Apple Watch, iPad, and iPad Air. Then, at an event in October, Apple announced a new smart speaker, the iPhone 12, the iPhone 12 Pro, and the iPhone 12 Pro Max. These new products should help Apple’s important hardware business keep growing smoothly.
A heavy appreciation
Even though Apple’s stock dropped about 13% from an all-time high, the tech company’s analysis is still pretty expensive. Apple has a price-to-earnings ratio of 37. This valuation measure seems more reasonable compared to next year’s earnings estimates. Apple is currently trading in nearly 32 times the average forecast of analysts for revenue next year.
But it is still a heavy premium to pay for a company that is growing at Apple’s rate. Analysts, on average, expect earnings per share in Apple in the compound at an average annual rate of approximately 13% over the next five years – impressive but not stellar when viewed next to the current valuation of stock. Simply put: The stock is not trading at a significant discount right now.
On the other hand, high-quality market leaders rarely trade at the levels they appear to steal.
So, is Apple stock a buy, sell, or hold? I would say this is a purchase, even in moderation.
In light of Apple’s long history of innovation and customer loyalty, shares of this leading tech company may still be worth buying in this valuation – as long as the stock is a small part of your portfolio. There is very little safety margin for things that go wrong to make Apple stock a big position. Also, with a very important appreciation like this, Apple investors should be prepared to suffer a lot of volatility in the coming years.