Is Apple (still) a good investment?

By Kirsteen Mackay

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Apple, home to the world's most coveted tech, is now a $2.3 trillion company. Is $AAPL stock still a good investment?

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Tech titan Apple (NASDAQ: AAPL), famous for the iPhone, iPad, and iTunes, is still going strong after 45 years. It’s now pushing into the health market and growing its services business.

Apple Services include music, TV, fitness channels, news, books, podcasts, Apple Pay, iCloud and more.

Is Apple a good investment?

Apple is constantly innovating and has recently unveiled a new product range. First-half earnings for 2021 exceeded expectations, and the buzz around Apple continues.

But as a $2 trillion company, can investors expect continued growth?

Photographer: Julian O’hayon | Source: Unsplash

Apple’s business has evolved to keep up with the times and consumer desires. It continues in this vein, and although it’s much harder to grow a trillion-dollar company exponentially, there are still many reasons investors like this stock.

With these points in mind, and with the company’s outlook, it makes sense for investors to ask themselves, “Is Apple a good investment, and should I buy Apple stock?”.

Fundamentals of Apple stock

The financial fundamentals of Apple are impressive. It’s one of the most valuable companies in the world, with a market cap of $2.3 trillion.

It’s also extremely profitable.

Apple’s share price rebounded in the 1990s after launching the iPhone.

And for the past nine years, the iPhone has been the biggest driver of revenue for Apple.

Last year, Apple drew around 80% of its revenues from product sales and 20% from services.

Between 2013 and 2020, Apple’s gross profit margin hovered around 38%. But this year it’s been enjoying higher profit from its Services business. This, along with product price hikes and improved hardware profits, has pushed its gross profit margin above 42%.

Meanwhile, its gross operating margin is around 30%.

Apple currently has a price-to-earnings ratio (P/E ratio) of 31.

Historically, Apple’s P/E hovered around 16, until late 2019.

So, this much higher P/E makes some investors nervous.

Not all, though. For Apple is an innovative company, and its Services business has changed the game. It’s now operating in several new areas, which don’t have the high overheads of hardware and its restrictive supply chains.

Meanwhile, Apple’s EV/Sales ratio is 7x.

Earnings per share (EPS) is 4.45, and its forward dividend yield is 0.6%.

The Apple share price is trading around $139, which is down 3.5% from its 52-week high and up 210% from its 52-week low.

Its debt pile is $134bn, and it has around $69.8bn in cash on the balance sheet.

Analyst price targets for Apple stock currently range between $90 and $185 per share.

The 12-month average target is $156, which gives an 11% upside from today.

What is the bull case for Apple?

Apple is undoubtedly a leading American company with a lot to offer. Apart from its enticing hardware and quality services, the company is investing heavily in new areas.

These include healthcare, self-driving electric vehicles, augmented and virtual reality (AR/VR), plus artificial intelligence and machine learning.

Outperforming top indexes

In the past five years, Apple has outperformed the Dow Jones Industrial Average (DJIA), the S&P 500, and the NASDAQ.

$AAPL stock outperforms DJIA, NASDAQ, S&P 500

Stock splits

Over its lifetime, Apple has split its stock five times during 1987, 2000, 2005, 2014, and 2020. This has increased shareholder value over time.

At initial public offering (IPO) in 1980, Apple stock cost $22.00 per share. On a split-adjusted basis, the IPO share price was $.10.

This means someone investing $1,000 at IPO would now have 10,000 shares worth around $1,399,600.

Share buybacks

Since 2012, Apple has reduced its share count from 26.5 billion to 17.1 billion through share buybacks.

Apple’s dividend and share buyback program adds value to existing shares. This keeps long-term shareholders happy.

Warren Buffett is a fan

Since 2016 Warren Buffett’s Berkshire Hathaway has held Apple shares in its portfolio. It now holds around 5.3% of Apple stock. This is greatly encouraging for potential investors, as Billionaire Buffett has an exemplary track record investing in quality companies.

In addition to Buffett’s stamp of approval, Apple is a favorite among institutions.

In fact, AAPL stock is held in 308 exchange-traded funds (ETFs), and US ETFs hold 1.79bn shares of Apple.

Meanwhile, short interest, which means traders betting against the stock, is only 0.5%. This shows overwhelming support for the company.

Apple is strongly committed to protecting user privacy. This is something its consumer’s value and goes a long way to keeping them loyal.

What is the bear case for Apple?

There is a lot to like about Apple as an investment, but even the world’s most valuable companies face shareholder risks.

Like Facebook (NASDAQ: FB) and Google (Alphabet (NASDAQ: GOOGL), Apple is also facing government and regulatory scrutiny.

With its overpowering reach, security is paramount in attracting and retaining customers.

While privacy is utmost in Apple’s quest for user protection, it threatens to cause legal problems for the company. The EU antitrust chief recently warned Apple against using privacy and security as excuses for anticompetitive behavior.

Meanwhile, the world is experiencing a global shortage of semiconductors, affecting many tech companies, including Apple. This could potentially impact revenues for some time.

Because Apple operates across various sectors; entertainment, hardware, software, AI/AR/VR, potentially EV, its competitors are varied.

But no one company is truly equal.

Some conglomerates it competes with, in various ways, include Samsung (KRX: 005930), Huawei, Microsoft (NASDAQ: MSFT), and Dell (NYSE: DELL).

Analysts are predicting minimal growth in the next year.

After exceeding expectations in the first half of 2021, a setback may knock investor confidence and cause the share price to fall.

Should I invest in Apple stock?

Apple has proven time and again that it’s not to be underestimated. It’s a dominant brand that continues to command considerable market share and innovate with new ideas.

Meanwhile, its history of stock splits shows Apple appreciates its shareholders, and this may occur again in the future.

Being such a valuable company raises the question of whether it can continue to grow. And continued regulatory scrutiny is likely to be expected.

But investors should remember when Apple hit the half-trillion-dollar mark in 2012, analysts widely expected the top. Nonetheless, Apple reached $1 trillion in August 2018, and two years later doubled that to $2 trillion.

Altogether Apple seems to be a relatively risk-free investment in a long-term portfolio.

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In this article:

Industries:
Information Technology
Companies:
Apple

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.