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Apple, Inc. Stock Hits New High: Buy, Sell, or Hold?

Here’s the bull and bear case for Apple stock — and what this analyst believes investors should do.

Apple (NASDAQ:AAPL) stock hit yet another new high last week, with shares closing at slightly above $156. The week’s gain puts shares up an impressive 69% in the past 12 months, and up 44% in the past six months alone.

Apple stock’s big gain follows the tech giant’s return to growth a few quarters ago, as well as greater investor confidence in the company’s ability to continue growing its business.

But with Apple stock trading so much higher, it’s a good time to ask the all-important question: Is Apple stock still a buy at this level?

Bull case

The bull case for Apple is highlighted by the company’s recent return to growth and its conservative valuation (Yes, Apple stock still trades conservatively even after its recent gains).

Apple’s growth prospects are undoubtedly looking more favorable than they were last year. After reporting three quarters in a row of declining revenue in fiscal 2016, Apple has now reported two quarters in a row of year-over-year growth. Even more, Apple’s growth in its most recent quarter actually accelerated compared to growth in the quarter before it. Revenue in fiscal Q2 was up 4.5% year over year and EPS was up 10.5% year over year. This compares to year-over-year growth for revenue and EPS in Q1 of 3.3% and 2.4%, respectively. Going forward, Apple expects growth to continue to accelerate. The midpoint of management’s guidance for third-quarter revenue implied about 5% year-over-year growth.

In addition, despite Apple stock’s soaring stock price recently, shares continue to trade conservatively. For instance, Apple stock has a price-to-earnings ratio of 19. While this is well above the P/E ratio of about 10 Apple stock had one year ago, it’s still handily below the average P/E ratio of about 24 of stocks in the S&P 500. Comparisons aside, Apple’s long track record of fat profit margins and pricing power alone makes it easy to imagine the tech giant living up to this valuation.

Bear case

But one reason for investors to be cautious about investing in Apple is the company’s undeniable dependence on its iPhone, which happens to also be a business segment that is showing signs of peaking.

While Apple’s iPhone revenue in its most recent quarter increased 1% year over year, iPhone unit sales were down 1% during this same period. To be fair, Apple’s iPhone 7 lineup marks the third generation in a row of new iPhones with the same general form factor. So, it’s possible that some customers are holding out for a more significantly refreshed iPhone, which the ever-active Apple rumor mill believes is coming later this year — just on time for the tenth anniversary of the important phone.

But here’s where the risk to Apple’s business is best understood: If iPhone sales do begin to decline in the future, this could be a major problem since the smartphone segment accounts for well over half of Apple’s revenue. In Apple’s most recent quarter, iPhone sales accounted for about 63% of total revenue.

Apple store in Santa Monica

IMAGE SOURCE: APPLE.

Despite Apple stock’s roaring gains recently, I’m going to continue siding with the bulls. Sure, I wouldn’t put as much of my money on the stock today as I would a year ago, but I’m not planning to trim my position either. As long as Apple continues to demonstrate strong pricing power and earnings growth, a price-to-earnings ratio of 19 still seems compelling for this established leader.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

 

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.