Apple Inc. (NASDAQ:AAPL) is just a few weeks away from its next earnings report. And thanks to a lot of news in the past several months, it could result in a big move for AAPL stock.
Last quarter, the tech company recorded its first year-over-year revenue decline since 2001. Those Apple earnings results were expected, of course, but still not easy to swallow. Furthermore, profits barely met expectations.
However, management didn’t only have bad news to share with AAPL stock holders. Forward guidance at the end of 2016 was very strong, both for sales and margins, and that could mean a big turnaround is in order when the next Apple earnings report drops.
There are merits to either side of the trade, but should you buy Apple Inc. here or sell the company right now? Here are three pros and three cons to help you decide:
Pros of AAPL Stock
Value Play: For all the talk about the end of Apple’s go-go growth, it’s important to acknowledge the company has matured and evolved into a strong value play. Right now the stock trades for just under 12 times future earnings, well under the forward price-earnings ratio of about 19 for the S&P 500 or Nasdaq indices.
Cash King: By the way, that forward P/E of 11 doesn’t back out the copious cash Apple Inc. is sitting on. Right now the tally is roughly $220 billion, give or take, or about a third of its market cap. If you don’t think some of that money is accessible thanks to repatriation issues, then consider the more than $50 billion in annual free cash flow. That’s plenty of dry powder right there.
Return of Capital: At its current perch of $119, AAPL stock yields a decent 1.9%. It also executed $29 billion worth of stock buybacks in the prior four quarters. Between these dividends and buybacks, Apple Inc. has returned more than $186 billion in capital to shareholders since 2012.
Cons of AAPL Stock
iPhone Overreliance: Part of the reason growth has slowed for Apple stock lately is because it is heavily reliant on its iconic iPhone to generate revenue. Right now, the device still accounts for about two-thirds of the top line, so it’s very difficult to imagine AAPL stock moving higher as this core part of its business decays or flatlines.
Stuck in a Rut: Shares have been bouncing around lately, but longer-term have remained range bound between $100 and $120 a share since late 2014. Sure, if you bought AAPL stock at $100 and unloaded at $120 that’s a nice 20% profit … but shares are now at the upper bounds of that range again and that could mean a rocky road lies ahead.
Tech Is Unforgiving: There’s always a lot of lip service paid to “innovative” companies with a history of “disruption,” but history shows it is quite rare for a once-dominant large-cap tech company to regain its former glory after it stumbles. Whether you’re talking about Cisco Systems Inc. (NASDAQ:CSCO), Microsoft Corporation (NASDAQ:MSFT) or recently acquired Yahoo Inc, it’s clear that once these big players take a breather, newer and hungrier companies tend to step in and fill the space. Be careful before you assume AAPL stock is any different.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.