Tech giant Apple Inc. (NASDAQ:AAPL) has seen its shares languish around the $155 mark for the past three months. Investors are questioning whether the company’s latest devices, the iPhone 8 and 8 Plus, will be enough to keep the firm’s revenue on the upswing after a brief period of decline. The new iPhones have had a lukewarm reception, as many complain that they are too similar to the 7 models, and others hold out for the iPhone X due out in November.
Apple stock’s loss of momentum provides an opportunity to buy, especially considering the fact that AAPL earnings are due out next week. While some are cautious ahead of the fourth quarter results, I think the results will send the stock higher, making now a great entry point.
AAPL Earnings Jump
As I mentioned, Apple’s revenue is of utmost importance to investors, especially after the firm reported a revenue decline for the first time ever last year. Since then, Apple has been able to report revenue growth consistently, and this quarter is unlikely to be any different.
Apple is expecting to report fourth quarter revenue to be somewhere between $49 billion and $52 billion. That means even if the figures come in at the low end, Apple will be able to report year-over-year growth from last year’s fourth quarter revenue of $46.9 billion. However, in the past, the company’s management has been notoriously conservative when it comes to AAPL earnings guidance, so I think it’s safe to assume that the revenue figures will come in on the higher end of the scale.
Some worry about whether the lackluster reception of the iPhone 8 will hurt the firm’s revenue. That’s a valid concern considering that iPhone sales are the meat and potatoes of Apple’s overall revenue. It’s true that people appear to be holding out for the iPhone X, the sales of which won’t impact the fourth quarter results. But I’d imagine that management took this into account when they were making their forecasts.
Improved Guidance for Apple Stock
Another big catalyst for AAPL stock is the firm’s ability to continue growing from quarter to quarter. Next week’s AAPL earnings call will likely be dominated by questions about the company’s highly anticipated iPhone X and the projections for its holiday sales. With so many souped-up new features and very few rivals boasting similar capabilities, the iPhone X has a lot of potential to boost Apple’s sales during the holiday shopping season.
As HSBC analyst Steven Pelayo pointed out
when the bank gave AAPL stock a “Buy” rating, Apple has a lot of loyal customers who are likely waiting for the iPhone X to hit the shelves before they upgrade. That massively loyal customer base gives Apple a wide moat. The buzz around the iPhone X has made it a must-have for people who are dedicated to the Apple ecosystem.
There are also some other future projects that Apple is likely to touch on in its upcoming earnings call that could send the stock higher. The firm’s services revenue will be in focus as Apple has been working to build out that arm of its business with new music and video offerings.
A Cheap Buy
With a price tag of more than $150, Apple might not come to mind as a cheap stock. However, the firm’s strong fundamentals coupled with its growth potential actually make the AAPL stock price today look like a bargain. Over the next few years, Apple is expected to grow its earnings by about 12%. At its current valuation, the stock only trades at about 17 times its forecasted earnings, below the S&P 500 average of 20.
Then there’s the fact that the company itself is so well-run that it has enough cash to survive even the worst-case scenarios. AAPL dividend payments not only offer a respectable yield of 1.61, but they are incredibly safe and have a lot of potential to increase in the years to come. Apple’s payout ratio is just 26.5, meaning that the company has ample cash flow to cover AAPL dividend payments several times over.
The Bottom Line on AAPL Stock
Apple stock has been a tried-and-true money maker for investors. Although its latest iPhones aren’t the crowd-pleasers some were hoping for, I believe there are still quite a few catalysts for the stock moving forward. The company looks poised to make a run during the holiday shopping period, and the firm’s overall growth story and rock-solid financials make it a great pick in the tech space.
As of this writing, Laura Hoy was long AAPL.
