Is Apple Still A Good Buy At $213/Share?

Earlier this month Apple became the first U.S. publicly traded company to reach 1 trillion dollars in market capitalization. The maker of the popular iPhone devices surprised some investors with its third-quarter earnings report. After the financials were released the company stock rose 4% in after-hours trading because Apple showed its EPS grew by 40% year over year, and revenue increased by 17% year over year. One reason for higher sales was the expensive yet highly coveted new flagship, the iPhone X. According to CNBC, there were many analysts “hanging high hopes on Apple’s flagship handset and its climbing average selling price (ASP). The 41.3 million iPhones shipped during the third quarter is basically flat from the year-ago period, but the ASP of $724 is a notable jump from the year-ago period. That ASP bump is likely because of the pricey iPhone X, which starts at $999”.

The surprising thing to consider is even though Apple shares (AAPL) rose 35% over the past 12 months the stock is still only fairly priced. The fundamentals look strong for the company and it knows how to deliver promising financial reports. Over the past 4 quarters, the company has reported 3 positive, 0 negative, and 1 in-line surprises. The average surprise for this time period has been positive 5.3%. Apple hosted its annual worldwide developers conference (WWDC) in June 2018, though the event barely registered in the stock price. The convention did reveal some meaningful software developments, even though there were not a lot of new innovative features or products shown. According to Jim Kelleher, CFA, of Argus, Apple shares remain “inexpensive compared with the market and peers, and is particularly attractive based on discounted free cash flow valuation. We believe that Apple’s positives are not fully reflected in the share price. We are reiterating our BUY rating and raising our target to $225 from $210”.

Apple has done a great job outperforming others in its industry. AAPL rose 46% in 2017 while the peer group was lagging behind with only 18% growth. However in 2016 AAPL grew only 10%, which slightly fell behind the 12% gain for the peer group. But not everyone is bullish on this tech stock. Darren Sissons, Vice Pres, Campbell Lee & Ross, mentions that although Apple is a great company, its business has evolved. He explains that Apple’s “penetration in developed markets is very high and so its sales are replacement cycle. In less-developed markets, the phone is so expensive that it is difficult to increase penetration. The company has a lot of cash, but it is not using it. In addition, the company has grown so quickly over the last few years that continuing the momentum will be a challenge. For someone who has owned this company for a while, he would recommend taking the cost basis off the table. He doesn’t expect this to have a huge correction, which is what he expects for Twitter, but he does expect Apple to become range-bound.”