Is Apple Stock a buy it now?

Is Apple Stock a buy it now?

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Big tech companies, such as Metaplatforms and Microsoftare having a terrible time in the stock market this earnings season due to the macroeconomic slowdown, but Apple (AAPL -3.73%) dodged a bullet and avoided a big sell-off when, on October 27, it released its results for the fourth quarter of fiscal 2022 (for the three months ended September 24).

The tech giant’s revenue and profit beat Wall Street estimates despite what Apple’s chief financial officer called a “challenging and volatile macroeconomic environment.” The company’s revenue rose 8% year over year to $90.1 billion, while adjusted earnings rose 4% to $1.29 per share. Analysts would have settled for $1.27 per share in earnings on $88.7 billion in revenue, but healthy demand for iPhones, MacBooks and wearables, along with growth in the services business from Apple, helped it post stronger results.

The iPhone moved the needle significantly for Apple last quarter, and the device is the main reason this tech giant seems worth buying at a time when other big names have fallen to the wayside. roadside. Let’s see why.

Apple thrives on strong iPhone sales

The iPhone was Apple’s growth engine last quarter. The device generated 47% of the company’s revenue and saw nearly 10% year-over-year growth in revenue to $42.6 billion. That’s impressive, given that the broader smartphone market shrank further in the last quarter.

According to Strategy Analytics, global smartphone shipments fell 9% year-over-year in the third quarter to 297 million units. Apple, however, bucked the trend and sold 49 million iPhones in the quarter, a 6% increase over the year-ago period. The company’s share of the global smartphone market has thus increased to 16.3%.

It should be noted that Apple’s sales increased at a time when its main competitors saw their shipments decline. SamsungShipments of were down 7% year over year. Chinese smartphone OEMs (original equipment manufacturers) such as XiaomiOppo and Vivo saw their shipments decline by 8%, 20.1% and 20.5% respectively.

More importantly, Apple enjoyed healthy pricing power last quarter despite inflation and worries about a possible recession next year. Dividing Apple’s total iPhone revenue in the fourth quarter of the fiscal year by Strategy Analytics’ shipments estimate, we’re looking at an average selling price (ASP) of nearly $879. That’s more than double the estimated ASP of the overall smartphone market of $413 for 2022, according to IDC.

Apple’s strong pricing power is not surprising. The ASP for 5G smartphones in 2022 is expected to land at $616, so customers are spending more on phones that support the latest wireless standard. Additionally, 5G smartphone shipments could jump almost 24% from 2021 to reach 688 million units and account for 54% of overall shipments, which tells us why Apple enjoys a mix of price and volume. healthy.

5G market can boost Apple’s long-term growth

Apple was the leading 5G smartphone OEM last year with a 31% market share. A similar share in 2022 means Apple could end up shipping just over 213 million smartphones, based on this year’s estimated 5G smartphone shipment forecast of 688 million. As Apple is expected to build 220 million iPhones this year, it could reach that level as it has a full lineup of 5G smartphones, including the entry-level iPhone SE.

Additionally, customers are willing to pay a premium for Apple’s 5G devices, as the company’s iPhone ASP indicates. Additionally, stronger demand for Apple’s more expensive Pro models is another indication of the company’s pricing power at a time when inflation is dragging the overall market down. As such, it will come as no surprise to see Apple maintain its dominant position in 5G smartphones.

The good news is that the 5G smartphone market still has plenty of room for growth. IDC estimates that 79% of smartphones sold in 2026 will support 5G. Based on IDC’s forecast of 1.46 billion global smartphone sales in 2026, annual 5G smartphone shipments could reach 1.15 billion units after four years. If Apple continues to control 30% of the 5G smartphone space in 2026 — which it could do in light of customer preference for its devices even in the face of macroeconomic headwinds — its annual iPhone shipments could reach 350 million units.

Multiplying that by an estimated $850 ASP (assuming Apple has to lower prices to keep the competition at bay), its iPhone’s annual revenue could approach $300 billion. That would be a big jump from Apple’s iPhone revenue of $205 billion in fiscal 2022, indicating that the company’s biggest revenue stream is set to grow over the long term.

With Apple trading at 25x earnings and 6x sales right now, buying the stock seems like a good idea as these multiples suggest a discount from last year’s earnings multiple of 31 and a multiple of 8 in sales. its foray into emerging areas such as headsets and even self-driving cars could make Apple a top tech stock in the long run, which is why investors may want to capitalize on its 12% decline in 2022.

Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Harsh Chauhan has no position in the stocks mentioned. The Motley Fool holds positions and recommends Apple, Meta Platforms, Inc. and Microsoft. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

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