It’s been claimed that the stock market’s swift recovery from the spread of the novel coronavirus has been led by a handful of tech names. Among that handful, without a doubt, is Apple (NASDAQ:AAPL). Apple stock has recovered from March’s crash and then some, adding around 7% year-to-date.
Being a stock-market leader is a heavy burden to bear. However, Apple’s stockholders have, by and large, remained eminently optimistic. Their thesis is that share prices near all-time highs, even during a pandemic, are entirely justified.
But cautious investors can’t rely on sentiment alone. A careful examination of the data and the drivers of Apple stock is of paramount importance. Only by knowing the facts can traders really make an informed decision about whether the stock is fully priced or still a bargain.
Is Apple Stock Trading at a Fair Price?
Traditional valuation metrics paint something of a mix picture in regard to Apple stock. For example, a trailing 12-month price-to-earnings ratio of 24.98 seems to suggest a fairly reasonable valuation, especially for a tech stock.
At the time of this writing, Apple stock’s 52-week range is $170.27 to $327.85. The current share price is very close to the high and nowhere near the low. Barring a second catastrophic wave of the coronavirus or a similar black-swan event, it’s conceivable that the shares won’t revisit the 52-week low anytime soon.
And then there’s the rather paltry 1.03% forward annual dividend yield, which trails the S&P 500‘s dividend yield of approximately 2%. But then, Apple isn’t really known as a dividend aristocrat.
Nonetheless, Apple stock remains a darling among the circle of professional analysts. To begin with, Deutsche Bank’s Jeriel Ong raised his price target on the stock from $305 to $320.
Ong cited, “store reopenings as a directional sign of improving trends and a drift toward a more normalized demand environment for Apple.”
For Ong, then, Apple shares are fairly priced though his price objective doesn’t leave much room for upside. Jefferies analyst Kyle McNealy is more ambitious with a price target raised from $350 to $370.
Factors in Apple’s Favor
Interestingly, McNealy seems to view Apple stock as benefiting from the pandemic, albeit indirectly.
“Apple has seen strong growth through online channels since the start of COVID-19,” McNealy stated.
Bank of America’s Wamsi Mohan also recently increased his price target on Apple shares. Referencing the iPhone’s considerable installed base, Mohan notched his price target up from $320 to $340.
The factors adduced so far are valid. Store reopenings will have a massive positive impact while the shift to online channels has, so far, worked in Apple’s favor.
And then there’s the potential for Apple to develop, or at least contribute to, a Covid-19 digital-tracing app. Will Rinehart, a senior research fellow at the Center for Growth and Opportunity at Utah State University, explained in an e-mail to InvestorPlace the larger significance of Apple building a framework for such an app:
“It allows apps to share information when users are near each other while keeping those identities private… [T]his framework could unlock a new world of proximity-based technologies once retail and advertising bounce back. Imagine, for example, grocery stores and other retail outlets that want to advertise in their stores but are also worried that consumers might be turned off by tracking. This kind of framework offers a way forward while still protecting the privacy of individuals.”
Clearly, the ramifications of this type of framework could be immediate and profound. Even if the share price of Apple stock appears lofty, the company remains a tech-sector bellwether. And contributing to the development of a next-generation digital-tracing app could reinforce Apple’s leadership status.
The Takeaway on Apple Stock
Is Apple stock overpriced, or a relative bargain? The answer varies based on whom you’re asking. The analyst community seems to still consider the shares reasonably priced. Cautious, value-oriented investors might disagree based on traditional valuation metrics.
The final outcome will only be known tomorrow, next week, next month, and next year, when the balance of buyers and sellers move the share price in one direction or the other. Until then, just know that bargains, like beauty, reside in the eye of the beholder.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.