Is Apple Stock a Buy Now?

Is Apple Stock a Buy Now?

This article was originally published on All figures quoted in US dollars unless otherwise noted.

Big tech companies like Metaplatforms Y Microsoftare having a rough time in the stock market this earnings season thanks to the macroeconomic slowdown, but Apple (NASDAQ:AAPL) dodged a bullet and avoided a big sell-off when on October 27 it released its results for the fourth quarter of fiscal 2022 (for the three months ending September 24).

The tech giant’s revenue and profit beat Wall Street estimates despite what Apple’s chief financial officer called “a challenging and volatile macroeconomic backdrop.” The company’s revenue increased 8% year-over-year to $90.1 billion, while adjusted earnings rose 4% to $1.29 per share. Analysts would have settled for $1.27 a share in earnings on $88.7 billion in revenue, but healthy demand for iPhones, MacBooks and wearables, coupled with growth in Apple’s services business, helped post stronger results. .

The iPhone moved the needle a lot for Apple last quarter, and the device is the main reason the tech giant seems worth buying at a time when other big names have fallen by the wayside. Let’s see why.

Apple thrives on strong iPhone sales

The iPhone was the driving force behind Apple’s growth in the last quarter. The device produced 47% of the company’s revenue and posted nearly 10% year-over-year growth in revenue to $42.6 billion. That’s impressive, considering the overall smartphone market was down once again last quarter.

According to Strategy Analytics, global smartphone shipments fell 9% year-over-year in the third quarter to 297 million units. Apple, however, bucked the trend and sold 49 million iPhones during the quarter, a 6% increase from the prior year period. As a result, the company’s share of the global smartphone market increased to 16.3%.

It’s worth noting that Apple’s sales increased at a time when its main competitors saw their shipments decline. SamsungShipments fell 7% year over year. Chinese Smartphone OEMs (Original Equipment Manufacturers) such as xiaomiOppo and Vivo saw their shipments fall by 8%, 20.1% and 20.5%, respectively.

More importantly, Apple enjoyed healthy pricing power last quarter despite inflation and concerns about a possible recession next year. Dividing Apple’s total iPhone revenue in the fiscal fourth quarter by Strategy Analytics’ shipping estimate points to an average selling price (ASP) of almost $879. That’s more than double the overall smartphone market’s estimated ASP of $413 by 2022, according to IDC.

Apple’s strong pricing power isn’t surprising. The ASP of 5G smartphones in 2022 is expected to hit $616, so customers are spending more on phones that support the latest wireless standard. Additionally, 5G smartphone shipments could rise nearly 24% during 2021 to 688 million units and account for 54% of total shipments, which tells us why Apple enjoys a healthy mix of price and volume.

The 5G market can power Apple’s long-term growth

Apple was the leading 5G smartphone OEM last year with a 31% market share. A similar share in 2022 means Apple could end up shipping just over 213 million smartphones, based on this year’s estimated 5G smartphone shipment forecast of 688 million. With Apple expected to make 220 million iPhones this year, it could hit that mark as it has a full lineup of 5G smartphones, including the entry-level iPhone SE.

Additionally, customers are willing to pay a premium for Apple’s 5G devices, as the company’s iPhone ASP indicates. Additionally, increased demand for Apple’s more expensive Pro models is another indication of the company’s pricing power at a time when inflation is dragging down the broader market. As such, it won’t be surprising to see Apple maintain its dominant position in 5G smartphones.

The good thing is that the 5G smartphone market still has a lot of room to grow. IDC estimates that 79% of smartphones sold in 2026 will support 5G. According to IDC’s forecast of 1.46 billion total smartphone shipments in 2026, annual 5G smartphone shipments could reach 1.15 billion units after four years. If Apple continues to control 30% of the 5G smartphone space in 2026, which it could in light of customer preference for its devices, even in the face of macroeconomic headwinds, its annual iPhone shipments could reach 350 million. Of units.

Multiplying that by an estimated ASP of $850 (assuming Apple needs to lower prices to keep the competition at bay), its annual iPhone revenue could approach $300 billion. That would be a big increase over Apple’s $205 billion iPhone revenue in fiscal 2022, indicating that the company’s biggest source of revenue will grow in the long term.

With Apple trading at 25 times ending earnings and 6 times sales right now, buying the stock seems like a good idea as these multiples suggest a discount to last year’s earnings multiple of 31 and sales multiple of 8. Strong demand for iPhones and its foray into emerging areas like headsets and even self-driving cars could make Apple a top tech stock in the long run, which is why investors may want to capitalize on its 12th fall. % in 2022.

This article was originally published on All figures quoted in US dollars unless otherwise noted.

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