As $AAPL climbs past $130 per share once again, after quite a bit of post-earnings softness, the question lingers: is now a good time to buy Apple stock?
The Apple Maven does not seek to provide investment advice. However, weighing in the pros and cons could help investors to make their own decisions.
This is the first in a short, two-part series in which I present what I believe to be the most compelling bull and bear cases for owning Apple shares. In a few days, I will turn the other way and publish the main arguments for selling AAPL instead.
#1. Success of the ecosystem
For a while (and maybe even today, to an extent), Apple was scrutinized for lack of growth opportunities. The iPhone was revolutionary when it came out, in 2007, but smartphones eventually seemed to enter a period of maturity and decline – see chart below on global shipments since 2009, compliments of Statista. The same happened to MP3 players and tablets, but even more quickly.
Figure 1: Global smartphone shipments forecast from 2010 to 2023.
Fast-forward to 2021, and Apple’s product portfolio seems to be in much better shape. Sure, the pandemic helped to boost demand for tech devices, and maybe so did the 5G upgrade cycle. But Apple’s success seems to transcend industry-wide, temporary tailwinds.
The data itself supports the idea that the Cupertino company has been performing much better than its peers lately – whether it be in smartphones or personal computers. I highly suspect that this is a result of Apple further developing its ecosystem, “locking” users into the brand as more (and better) products and services come to market.
Anecdotally, Twitter user Jerry Parker summarized the point very well:
“Once you buy the iPhone, you start buying other Apple products. Then you get subscriptions, then the 15 y/o has to have AirPods like his friends, etc.”
If Apple’s product and service portfolio is, in fact, behind the company’s outstanding financial results in the past few years, then expect the performance to stay strong going forward as the ecosystem continues to develop. In this case, betting on Apple stock might make a lot of sense.
#2. Growth opportunities yet to be modeled
The question “what is Apple’s next big thing?” has become a mantra, especially to make the point that the Cupertino company has arguably lagged on its product innovation efforts. Although the Apple Watch and AirPods were launched somewhat recently, I believe that Apple’s next big thing is still around the corner.
There are two key product categories that could propel Apple’s growth to the next level. Rumors around the Apple Car have grown so loud, that the release of an autonomous vehicle is all but a certainty at this point. At the same time, mixed reality devices could be the next, possibly largest addition to Apple’s already fast-growing wearables portfolio.
The better news for investors is that the upside potential to Apple’s P&L and cash flow from these longer-term opportunities is likely not even properly factored into the financial models. For instance, Wall Street expects EPS to grow to $6.50 by fiscal 2025, at a modest annual rate of 6%. How conservative could this number prove to be, should Apple successfully launch products like the electric vehicle?
#3. Valuations finally de-risked
Lastly, I believe that there is an argument to be made for owning Apple stock on the back of decreased valuations. To be fair, shares that trade at a forward P/E of about 25 times are far from being a bargain. But as I explained recently, valuation multiples have come down noticeably in the past few weeks.
Figure 2: Historical valuation multiples chart.
The chart above shows Apple’s price-to-earnings ratio over the past year. Outstanding fiscal second quarter results led to a sharp increase in EPS expectations, but not to a bump in the stock price. Maybe it is this “flash sale” that may convince an investor to put money on Apple stock now.
Twitter speaks
There might be many other important reasons to own Apple stock. I wondered what Twitter thought about it. Below are the responses to my recent poll.
Is the price right?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)
