Down 17%, Is Apple Stock a Buy?

Following an enormous run-up in 2019 and the primary half of 2020, shares of Apple (NASDAQ:AAPL) have taken a breather lately. The tech inventory is down 17% from an all-time excessive of about $138 this summer season.

Is weak spot within the tech big’s inventory a shopping for alternative? Or ought to buyers hope for a good larger sell-off earlier than they take a place within the iPhone maker?

iPhone 12, 12 Professional, and 12 Professional Max. Picture supply: Apple.

Apple’s enterprise is stronger than ever

It is tough to criticize Apple’s enterprise. The corporate generated $275 billion of income within the trailing 12 months, up from $260 billion one yr earlier. In the meantime, Apple raked in an unimaginable $73 billion of free money circulate (money from operations much less capital expenditures).

One potential critique an investor would possibly deliver up is the corporate’s decline in iPhone income in Apple’s most up-to-date quarter. iPhone income fell 26% yr over yr throughout the interval.  However Apple bulls would quickly point out that the tech company was up in opposition to an unfair comparability throughout the interval since this yr’s iPhone launch was delayed by pandemic-related provide chain challenges. In actual fact, for those who rewind one quarter — when Apple wasn’t up in opposition to an unfair comparability — Apple demonstrated progress throughout each product section and each geographic area. Within the firm’s most up-to-date quarter, each section aside from the iPhone noticed robust double-digit progress regardless of provide chain constraints for some merchandise. Administration went so far as to confidently forecast that its iPhone section would return to progress throughout the present quarter.

Then there’s Apple’s $192 billion of money and marketable securities. Even when subtracting out low rate of interest debt, extra money is $79 billion.

With each a robust enterprise and a wholesome steadiness sheet, the corporate is unsurprisingly returning masses of cash to shareholders. Within the fourth quarter of fiscal 2020 alone, Apple returned $22 billion to shareholders by way of dividends and repurchases.

However what about that expensive valuation?

Apple’s demonstrating broad-based progress, producing greater than $70 billion yearly in free money circulate, and sitting on a mountain of money. However is it value $2 trillion? That is roughly the place the corporate’s inventory worth in the present day places its market capitalization.

Apple distribution heart. Picture supply: Apple.

Sadly, despite the fact that Apple seems to be properly positioned to ship double-digit earnings progress within the coming years, the inventory’s valuation is just too steep to make this a no brainer purchase in the present day. Shares presently commerce at 35 occasions earnings — a steep premium that costs in robust progress for years to come back.

Certain, Apple inventory could also be purchase for buyers on the lookout for dividend revenue. Apple presently has a dividend yield of 0.8%, and it is grown that dividend payout yearly because it was initiated in 2012. However for buyers on the lookout for robust share worth appreciation over the subsequent 5 years, it could be value ready to see if the inventory falls additional earlier than shopping for.