Apple (NASDAQ:AAPL) stock has hit a roadblock on its way to a market cap of $3 trillion.
It turns out that $3 trillion is a lot of money.
AAPL stock fell almost 4% on Dec. 16 and then another 1.3% in after-hours trading on that day. It opened Dec. 17 at about $17o per share, and it’s changing hands for around $169 per share today. That’s almost 31 times last year’s earnings and almost 7.5 times analysts’ average fiscal 2022 sales estimate of $385 billion. Apple’s market capitalization is $2.82 trillion.
Long-term investors are not sweating the drop. The shares are up five-fold over the last 5 years. Apple’s stock split 4:1 in 2020 after a 7:1 split in 2014. I last got into the name late in 2018, and despite taking some of my money out of it subsequently, I still have a 131% gain.
New Catalysts
Unlike high-flying tech stocks such as Cloudflare (NASDAQ:NET), which have been pummeled, Apple is seriously profitable. In its last reported quarter, Apple earned $20.5 billion on sales of $83 billion. For each $4 of its revenue, nearly $1 hit the company’s bottom line. And its sales jumped 29% year-over-year.
Every new iPhone is an earnings catalyst for Apple, and it has other upbeat drivers. The Apple Watch is still just getting started as a health aid. Apple Glasses are reportedly coming. Apple TV is just starting to ramp up, and the company keeps filing patents that indicate it plans to launch an Apple Car.
Apple is also looking to expand its hardware margins by designing more of its own chips. It has already replaced Intel’s (NASDAQ:INTC) microprocessors with designs based on the ARM platform. Apple is also going to design its own modems, replacing Qualcomm’s (NASDAQ:QCOM) offerings. Now it’s looking to dump the chips of Skyworks Solutions (NASDAQ:SWKS) and Broadcom (NASDAQ:AVGO) as well.
Apple’s Valuation
Apple is one of the five “Cloud Czars” that dominate the global economy. The others are Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG), Amazon.com (NASDAQ:AMZN) and Meta Platforms (NASDAQ:FB), the company formerly known as Facebook.
Apple, however, has distinguished itself by tying its services closer to its hardware ecosystem. For example, Apple Music, the descendant of iTunes, will soon be integrated into its operating system.
So as investors turn to value stocks and companies that make real stuff, Apple’s shares are climbing relative to its “Cloud Czar” peers. The gap between its market capitalization and that of Microsoft has expanded over the last three months. Amazon and Facebook are both down in that time, and Google is treading water.
Given its growth rate and prospects, Apple is already practically a value stock. The average price-earnings ratio in the S&P 500 is over 29, just slightly below Apple’s price-earnings ratio.
Apple does, however, have problems. With over 147,000 employees, that’s inevitable. There’s a hashtag called #Appletoo that’s being used to complain about sexual harassment within the company. A woman who organized the movement says she was fired for doing so. And the U.S. Labor Department is reportedly probing the company over “environmental and health safety issues.”
The Bottom Line on AAPL Stock
It makes sense for markets to take a breather as the outlook of the economy shifts.
Inflation and supply chains will be a challenge for Apple, as they will be for every manufacturer.
Apple draws 17% of its sales from China, and China still represents a large part of its supply chain, while Apple’s cooperation with China’s government is increasingly controversial.
But Apple is addressing all of those issues. It’s bringing more of its operations in-house, and it’s slowly merging the operating systems of its phone, tablet and PC.
If Apple is overvalued, everything is overvalued. That may be the case, but there are few better places to be than the stock market.
On the date of publication, Dana Blankenhorn held long positions in AAPL, NET, INTC, MSFT and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
