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This story originally appeared on MarketBeat
The week before Apple (NASDAQ: AAPL)Another strong quarter was reported, confirming that business conditions remain healthy amid a stronger global economy.
Some investors were concerned by the lack of guidance and management’s prediction for slower growth during this period. Apple stock fell from pre-earnings just as it appeared that it would surpass its July 15 th record of $150.
The downturn in Apple was gentle, with the stock now at $5 below its peak. Are fears about a slowdown in growth driving the stock down, or is the market able to see the apple trees from the trees?
It is clear that growth could be better than anticipated, as evidenced by the strong quarter. —-Apple is still growing, regardless of whether it is the strong Services business or the solid performance in hardware.
Apple Reports Fiscal Q3: What did they report?
Apple’s fiscal third quarter results beat analyst expectations on both the bottom and top lines. The company’s sales grew by 36% to $81.4 million year-over-year, and the earnings per share (EPS), doubled to $1.30.
Strong iPhone sales were a key factor in the success of this year’s iPhone. Other hardware products, such as iPads and Mac computers, also played a significant role in the performance. The Services company deserves to be the undisputed hero. The App Store, Apple Music and AppleCare continue to make it a thriving business.
It was a great quarter, regardless of product type. There was also broad geographical strength. As consumers and businesses continued spending, the all-important China market saw a significant increase in sales.
What is Apple doing from Here?
Apple did not provide guidance for the fourth quarter, as is the norm in corporate America ever since the outbreak of the pandemic. This was due to uncertainty. However, management did note that sales growth is expected to reach the double-digits in this quarter, but less than what was achieved during the third quarter.
There is no need to panic. It is amazing that even a mature technology veteran can deliver growth comparable to the 2000s. There are some mega-cap tech peers that would gladly take 29% revenue growth as analysts are currently forecasting for this quarter. It’s not too bad to see 64% growth in EPS.
The market is not happy with slow growth. Apple, however, is an entirely different beast. The Services division of Apple has grown at a staggering rate, which was due to slow down after several service launches and year-over-year COVID comps. There are also ongoing challenges in global supply chains that will impact iPhone sales —- and other tech companies. Add in unfavorable currencies translation effects, and a slight slowdown can be considered pretty good.
Apple has a cash position in excess of $200 billion, which gives it an almost limitless number of opportunities for growth. Services will become an increasingly important part of the company, while the iPhone will continue to generate large amounts of cash in the future. However, Apple will move closer towards its biggest potential opportunities.
The company has made significant investments in autonomous vehicles. We don’t yet know exactly where Apple will be placed, but it is reasonable to believe it will have a significant role in this technology, just as Apple has played in music and computing.
The emergence and use of AR/VR technology is expected to drive Apple’s long-term growth. To build the next wave of growth, Apple has acquired several companies in this sector including AR software and AR hardware firms.
There is also the Internet-of-Things market, which is expected to expand rapidly over this decade. Apple’s brand strength and product knowledge should enable it to capitalise on growing demand for connected appliances and consumer electronics. This could be the company’s biggest opportunity.Is Apple Stock Undervalued?
Apple’s forward earnings are 27x. This is a far cry from the days when Apple traded at a low-teens multiple. At first glance, this would seem expensive given the current forward P/E of the S&P 500 of approximately 21x. Apple’s value is still reasonable, if not slightly affordable for two reasons.
The forward P/E for S&P 500 value stocks and growth stocks is 29x, while it’s 17x for value stock. Apple’s value-investing style includes dividends and a low price-to book ratio. However, it needs to be more compared with its growth peers. This measure suggests that the stock may be undervalued.
Apple’s growth statistics make it a worthy premium multiple. Over the past five years, EPS has grown by nearly 15%. The industry’s average profit margin is well over the company’s. The company also has new growth tools, especially Services and cloud which will accelerate its growth.
Short term traders who want to take advantage of the post-earnings dip might find a better entry point. For long-term growth investors who want to be a part of a top tech leader, this is the best time to grab some Apple shares.
Publiated at Tue, 3 Aug 2021 11:29:03 +0000