Apple - To Buy or Not To Buy?

01 July 2020

    Apple has been one of the indisputable leaders among US stocks this year. Up over 25% this year alone, as most of the market struggles to keep its head above water, it has investors asking if they can still take a bite of that apple, or are they too late to go in? Let’s take a look.

     

    Apple stock did have a tough time with a 30% fall following the closing of its retail stores worldwide amid coronavirus concerns. How was Apple able to make it out alive? The answer is: wearable devices and a very strong online sales system. As many retailers struggled with weak demand, Apple had a lifeline to hang on to. Apple’s second quarter results in late April demonstrated an overwhelming revenue of $58.3 billion, edging up 1% compared to the year-ago quarter, while earnings of $2.55 per share increased 4%. 

     

    What’s driving Apple now? The main catalyst for the stock is Apple’s ongoing shift to a new generation of mobile technology - the 5G. Many believe that the iPhone 12, to be released this year, will already incorporate the technology, boosting the stock to new highs.

     

    Another factor helping the company along the way is the share buyback program. RBC Capital's Robert Muller believes Apple will continue to buy back stock of about $70 billion annually, similar to its recent rate. If that is to be the case, Apple is scheduled to produce compounded earnings-per-share growth of 4% from buybacks alone. 

     

    A nice big cherry on top are Apple's services. Over the past four quarters, the segment has generated more than $50 billion in revenue, amounting to nearly 19% of Apple's total sales.

     

    The stock currently sells for about 29 times earnings, and the company is trading at six times forward sales - a result of the stock’s impressive recovery since the late March bottoming. 

     

    Is there a bright future ahead for Apple this year? Given everything, there may well be!


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