No one wants to pay for more than they have to. Logically, that extends to the markets as well. The old adage that every investor hears is “buy low, sell high.” If only it were that easy! That’s always the end goal, but as we know, for every winner, there is a loser. To avoid the latter, we tend to ignore overheated assets. This brings us to our discussion of Apple Inc. (NASDAQ:AAPL).
For such a mainstay in the financial markets, AAPL stock is exceptionally spirited. Year-to-date, shares are up 21%. To put this into perspective, Apple stock leads all other companies listed in the Dow Jones Industrial Average.
It’s not even close. The next-best performer is Boeing Co (NYSE:BA), which has garnered a comparatively small 15%. Needless to say, life is grand for investors of AAPL stock.
That’s wonderful news for those that stuck to their guns and ignored the naysayers. But for those that are late to the game, they have a quite a dilemma. Do they buy into the strength of Apple stock, hoping for further gains? Or do they decide that the opportunity is far too deep to offer anything meaningful?
AAPL Stock Is Built for the Long Haul
To help answer the first question, we have to forecast whether Apple stock will continue to be relevant. That’s fairly easy to determine. This is Apple, not some speculative start-up company. It would be the shock of the century to witness Apple stock crumble. The difficult question is the latter — can AAPL stock do something for me in the here and now?
Time and again, we hear the same thing about the iconic consumer tech giant: Against a variety of metrics, Apple stock represents great value. This isn’t just based on fundamental granularity. As InvestorPlace contributor Will Ashworth points out, the stock is assessed strictly as a hardware manufacturer. However, “it’s very much a service business with iTunes, App Store, Apple Music, etc.”
The best part is that this business diversity is paying real dividends. In the first quarter of fiscal year 2017, service revenue for AAPL totaled $7.2 billion. That represents an 18% growth rate compared to the year-ago quarter. Should the trend continue to move forward — and there’s no reason to doubt it — the allocation of service revenue against total revenue will easily hit strong double-digits.
Because of this shifting dynamic, Mr. Ashworth argues that the flagship iPhone doesn’t have to break records all the time. So long as sales don’t crumble, Apple stock will remain the undisputed king of consumer tech.
It also helps that the competition is constantly playing catch-up. Although Samsung Electronics (OTCMKTS:SSNLF) and Sony Corp (ADR) (NYSE:SNE) are making strides, they can’t match the organic connectivity of AAPL. Seemingly, the dominance of Apple stock is assured.
But Wait for a Better Deal
Given enough time, a great many investments can turn out to be winners. But is now the right time to bite on AAPL stock? This is where I find myself agreeing with InvestorPlace contributor Bret Kenwell. While Apple stock is cheap compared to the broader markets, against its own historical averages, it’s fairly overheated.
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I say this because trading volume declined while the price action increased. Typically, this discrepancy warrants further investigation. If AAPL stock is so hot, you’d like to see an increasing number of investors jump on board.
But by the numbers, you see the opposite trend. In the final quarter of last year, the average trading volume was 32 million shares. In Q1 of this year, the average slipped to 27.4 million, or a decline of 14%. That’s not too bad in and of itself. But when you consider that the average share price of Apple stock jumped nearly 17% from Q4 to Q1, you’d ideally like the volume to confirm the optimism.
That’s not to say that you should avoid AAPL stock — clearly, it’s a great value as others attest. But that doesn’t mean you should settle for Apple stock at any price. Given its historical volatility, and the fact that the Street isn’t too hot on the company, I’d wait it out. As Kenwell notes, a 7% to 10% correction is quite reasonable. And that’s a better entry point than going in right now.
Josh Enomoto is long SNE.
