After rising to a record high of almost $ 138 in September, the stock Apple (NASDAQ: AAPL) retreated a little. The stock is currently trading at about $ 120 – 13% lower.
Not only has Apple not dropped to its highest level, but the company has a new line of new products and even some new services that are about to come out. Is this a good time for investors to engage in technology stocks?
Strong business momentum
While we don’t yet know how successful Apple was in its recently ended fiscal fourth quarter, as the technology company has not yet reported earnings for that period, we do know that Apple’s momentum in the previous quarter was exceptional.
Even among the problems caused by the coronavirus, Apple’s fiscal revenue rose 11 percent in the third quarter from a year earlier and earnings per share rose 18 percent. In addition, the company saw growth in each of its product segments during the period.
Services – Apple’s second largest segment after the iPhone – continues to be the main catalyst for the company. Total income from services in the third financial quarter increased by 15% compared to last year.
“We’ve had high performance with digital services through ongoing revenue accounting in the App Store, Apple Music, video and the cloud,” said Apple CEO Tim Cook in the company’s third-quarter earnings report.
Going forward, Apple has two more services that are going to launch to further strengthen the profitable segment. Apple Fitness +, a Peloton-similar virtual fitness service, which launches later this year. In addition, sometime this fall, a package offer of Apple’s own services (including Apple TV +, Apple Music, iCloud and others) called Apple One will be launched.
Then there is all the new equipment that Apple has released recently and will continue to be released in the coming weeks. In September, Apple updated its Apple Watch, iPad and iPad Air. Then, in the October event, Apple announced a new smart speaker – iPhone 12, iPhone 12 Pro and iPhone 12 Pro Max. These new products should help Apple’s important hardware business continue to grow.
Despite the fact that Apple shares fell by about 13% from its highest level, the assessment of the technical company is still quite expensive. Apple has a price-to-earnings ratio of 37. This valuation metric looks more sound than next year’s earnings estimates. Apple is currently trading about 32 times more than analysts’ average earnings forecast for next year.
But it is still a great bonus for a company that is growing at the pace of Apple. Analysts expect, on average, that Apple’s earnings per share will be around 13% on average over the next five years – impressive, but not stellar, if you look next to the current valuation of the shares. Simply put: stocks are not traded at a significant discount today.
On the other hand, high-quality market leaders rarely trade at levels that make them look like theft.
So is Apple stock buying, selling or holding? I would say it’s a purchase, albeit in moderation.
In light of Apple’s long history of innovation and consumer loyalty, shares of this world-class technology company are still worth buying at this rate – while stocks make up a small portion of your portfolio. It’s just that there is too little margin of safety for something to go wrong to make Apple stocks big. In addition, at such an expensive valuation as this, Apple investors should be prepared to experience great variability in the coming years.