Is Apple Stock a Buy?

Two years after becoming the first company listed at $ 1,000 billion, Apple (NASDAQ: AAPL) became the world’s largest $ 2 trillion company in August 2020. Such exponential growth over the past few years shows quite clearly that the company has been extremely successful and that Apple shareholders have done very well with it.

After such a great run, some investors may wonder if Apple stocks are still a smart buy. Let’s take a closer look and see if we can respond if Apple stock is still worth considering.

Apple’s biggest advantage

Apple has established itself as one of the world’s premier brands and the company has become synonymous with stylish and trendy technology. As a result, Apple’s iconic products – from iPhones and iPads to MacBooks and AirPods – have mass appeal globally. And that makes it harder for lesser-known companies to compete with this tech titan.

Image source: Apple.

Apple’s market opportunity

To put Apple’s scale into perspective, the company had 1.65 billion devices in use globally as of December 2020. Additionally, the iPhone is the most popular smartphone in North America and the iPad is the leading tablet in the world market. While it is more difficult to generate future growth in these markets, Apple’s massive user base remains a valuable asset and could be the key to unlocking future opportunities.

At the end of 2018, Apple changed its growth strategy to focus on services. At the time, this included the App Store, Apple Pay, advertising and cloud services, and some subscription services like Apple Music. But over the past two years, Apple has launched several new products that have significantly expanded its ecosystem of services.

In March 2019, the company partnered with Goldman Sachs and MasterCard to launch the Apple Card credit card. Shortly after, the company announced its new game service (Apple Arcade) and a new streaming service (Apple TV +). More recently, in late 2020, the company launched Apple Fitness +, bringing workouts led by professional trainers to various Apple devices.

Apple’s service revenue last year was $ 53.8 billion, or about 20 percent of total sales. But the company’s recent innovation frenzy is a good sign, and Apple’s expanding service portfolio could be a major growth driver going forward. Additionally, Apple’s gross margin on services was 66% in 2020, more than double its gross margin on products. In other words, as services account for a larger share of total sales, Apple is expected to become more and more profitable.

Apple improves its performance

Weak iPhone sales in 2019 and headwinds related to the pandemic in 2020 slowed Apple’s sales growth. However, in the first quarter of fiscal 2021 (reported at the end of last month), Apple’s growth accelerated sharply, driven by a wave of new products.

Metric

2018

2019

2020

Q1 2021

Revenue Growth (YOY)

16%

(2%)

6%

21%

Data source: Apple SEC documents. Q1 2021 ended December 26, 2020. YOY = year over year

Apple’s performance in the last quarter was strong across all product categories. The recent release of the 5G-enabled iPhone 12 family resulted in a 17% increase in iPhone sales year-over-year. Likewise, the latest from Apple MacBook powered by M1 models have boosted Mac sales by 21% year-over-year. And service revenue jumped 24% year-over-year, thanks to strong sales from the App Store, advertising and cloud services.

Investors should be encouraged to see Apple’s year-over-year sales growth reach 20%, and even more excited to see widespread strength across all segments. Apple products are still in high demand, and that’s a good sign for the future of the company. If Apple can continue to grow its global share of devices, the company’s services business is expected to continue to gain ground quickly.

Blue box, with the Apple App Store logo, on a shelf.

Image source: Apple.

One last word

Apple is already a huge global company, and in order to have a substantial impact on its growth trajectory, Apple’s service business will need to be huge accordingly. This can be a difficult task to accomplish, especially since Apple will face several strong competitors.

For example, Android smartphones have a much larger global market share than Apple’s iPhone, resulting in AlphabetGoogle Play Store is a serious advantage over Apple’s App Store. Additionally, Apple TV + may struggle to gain traction in the increasingly competitive streaming market, especially given the level of success. Netflix and Disney have already succeeded.

Investors should also note that, since 2014, Apple has been working on an autonomous electric car as part of Titan Project. Recently rumors about the company partnership in progress on an Apple brand car with Hyundai came to nothing, but hours after this announcement, Nissan has expressed interest in working with the tech company. Although the details are still vague, investors should pay attention to the situation.

Apple got to where it is today with incredible innovation. From the first iPod to the latest iPhone, the company has managed to captivate consumers for years. And I would never bet against Apple’s ability to create a new market opportunity (i.e. an Apple car). Additionally, the company has strong leadership in CEO Tim Cook, incredibly deep pockets, and one of the world’s most valuable brands. From this perspective, Apple still looks like a solid long-term investment.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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