Apple Inc. (AAPL) stock is back above $100 for the first time in six weeks, and now anxious investors are concerned about whether AAPL can hold that level.
They needn’t worry.
For one thing, some bullish technicals suggest that the Apple stock price found a bottom last month. And even if the bottom isn’t in just yet, it doesn’t matter: AAPL is at bargain-basement buy levels.
If Apple shares trend down again, so what? That’s great news for investors looking to pick up more shares at even deeper discounts. Because make no mistake, the relative valuation of Apple stock makes it a screaming buy.
AAPL stock is contending with a number of headwinds these days, but none is stiffer than iPhone sales. They’re expected to suffer a year-over-year decline for the first time in history, and the market is freaking out.
Now, to be fair, the iPhone segment is Apple. That’s the business that once drove Apple stock to a market cap of more than $600 billion. A bet against AAPL is a bet against the company engineering a big iPhone comeback with its new fall model.
Other headwinds include worries that without Steve Jobs, Apple can’t innovate hits like it used to. There’s also a fear that AAPL has become so gargantuan that its growth rate will inevitably stall, but that has dissipated since Apple stock’s market cap plummeted by more than $200 billion in the past year.
However, iPhone is the driver of the selloff that began last summer, and it’s this bout of fright that has AAPL stock trading on the cheap.
Apple Stock Is on Deep Discount
The problems with iPhone sales have some folks betting that Apple’s days of super-sized growth are over. Maybe so, but we’ve seen this happen before. The company was struggling with sickly results in the sector before it fixed everything with the iPhone 5s.
When you compare the iPhone 6s and iPhone 6s Plus to prior models, they weren’t big hits. But it’s too soon to conclude that Apple has lost it’s touch. If iPhone 7 is a flop, it’s time to revisit the thesis on AAPL, but we’re not there yet.
The market’s premature nerves have more than discounted in the share price, anyway. No one values AAPL like a growth stock anymore. It changes hands for only 10 times forward earnings. Utilities and telecommunications stocks go for more than that, and no one mistakes them for fountains of growth.
Click to Enlarge Indeed, the forward price-to-earnings multiple on Apple stock offers a discount of nearly 40% to the broader market. It’s about 20% below its own five-year average, according to Thomson Reuters Stock Reports.
In addition to the favorable fundamentals, Apple stock is showing some technical strength. Shares hadn’t had a whiff of their 50-day moving average for three months, and then on Wednesday they punched through to the upside.
If the Apple stock price can make a successful test of that key level, there’s a good chance the 52-week low notched in February marks the bottom of this protracted drawdown.
If the growth rate never rebounds to its glory days, the valuation, cash flow and cash on the books still makes Apple stock too compelling to reject.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
