Apple Inc.: Apple Stock Is an Unbelievable Bargain (AAPL)

Here’s some great news for Apple Inc. (AAPL) bulls — as was widely expected, Apple’s quarterly earnings and outlook were disappointing, and that means a high-quality stock is getting cheaper by the minute.

Apple Inc.: Apple Stock Is an Unbelievable Bargain (AAPL)Apple stock gapped down 5% at Wednesday’s open — a huge move for a stock with a market cap of $550 billion — but it could have been much worse. The fact AAPL didn’t fall off a cliff shows how well lackluster results were baked into to AAPL ahead of time.

As well they should have been.

It’s been an open secret that Apple’s iPhone was in unprecedented territory. Sales of the coveted gadget were so strong a year ago that results generated by new models just can’t compete. For the first time in history, Apple is predicting a year-over-year decline in iPhone sales.

That’s partly why shares in Apple are down 20% in the last six months, hitting levels not seen since the summer of 2014. This “growth” crisis has been simmering for awhile, and it was only a matter of time before Apple became a victim of its own success.

But that doesn’t mean it’s over Apple stock. Not by a long shot.

Apple Earnings Spook Investors

Even a disappointing quarter by Apple is still pretty impressive: Apple logged record profits, and earnings rose 1.9% to $18.36 billion from $18.02 billion in the year-ago period. Apple earnings per share came to $3.28, beating Wall Street estimates by 5 cents, according to analysts polled by Thomson Reuters.

Revenue, however, rose 1.7% to $75.87 billion from $74.6 billion a year ago. That was short of the Street’s view for $76.6 billion.

That’s Apple’s slowest growth rate in years. Worse, AAPL claimed revenue in the current quarter will decline for the first time in 13 years.

The market is taking this as proof that Apple’s days of supersized growth are over. Maybe, but we’ve been here before; growth was anemic before we got iPhone 5s. And then it came back.

Just because the iPhone 6s and iPhone 6s Plus weren’t big enough upgrades over prior models doesn’t mean Apple has lost it’s touch. It’s happened before.

Sure, maybe the iPhone 7 will be a flop, but it’s usually not a good idea to bet against Apple when it comes to refreshing a product line. Not every iteration of the iPhone has been a revelation, but the company comes through when it needs to. You can be sure Apple is working overtime to make the iPhone 7 special.

And what if we really have hit peak iPhone saturation? AAPL isn’t valued like a growth stock, anyway. Shares change hands at — wait for it — nine times forward earnings. Even utilities and telecommunications stocks aren’t that cheap.

Even at a reduced growth rate Apple is a value stock picker’s dream thanks to valuation, cash flow and cash on the books.

The days of turbocharged growth might be behind Apple, but no one expects it to shrink in the next few years. The stock’s compressed multiple is an expression of emotion, not reality.

It’s going to take a while for the market to come to its senses, but there’s no question that Apple stock is on sale these days.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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