Buy Apple (AAPL) Stock For Cheap Heading Into 2019?
Zacks Investment Research | Dec 18, 2018 06:02AM ET
Shares of Apple (NASDAQ:AAPL) have tumbled 24% in the last three months as part of the larger market pullback. But investors do have legitimate concerns about Apple going forward as iPhone unit sales slow. Still, the question is should investors take Apple’s downturn as a chance to buy AAPL stock at a discount?
The Worries
Last week, a Chinese court ordered a sales ban on some older iPhone models in the world’s second-largest economy after it ruled in favor of Qualcomm (NASDAQ:QCOM) in a patent lawsuit. Enforcement isn’t a threat just yet, but any setbacks in China could harm Apple as it looks to expand in Asia.
With that said, Apple’s new higher priced iPhones, which have helped boost the company overall, have hindered its pursuit for expansion in potentially massive markets such as India, where many customers want to pay much less for their smartphones.
Worse yet, the number of iPhones shipped in India has fallen 40% so far this year compared to 2017, according to report . Plus, Apple’s market share dipped from 2% to 1%. Going forward, Apple executives will have to figure out a way to offer products at more competitive price points in markets where major growth is still possible.
Apple is a few years removed from solid year over year iPhone unit growth. Last quarter, iPhone revenues surged 29% to help total revenues climb 20%. However, iPhone unit sales came in flat from the year-ago period. Apple also seemed to confirm that its days of meaningful iPhone unit growth are over after executives announced that they would no longer break down smartphone unit sales.
Price Movement
As we mentioned at the top, Apple stock has fallen over 24% in the past three months. AAPL’s recent decline, which has coincided with drop-offs from other FAANG powers Facebook (NASDAQ:FB) , Amazon (NASDAQ:AMZN) , Netflix (NASDAQ:NFLX) , and Google (NASDAQ:GOOGL) , helped push Apple stock down 5% on the year.
Apple stock closed regular trading Tuesday up 1.30% to $166.07 per share, which marked a 29% downturn from its 52-week high of $233.47 a share. With that said, investors can see that Apple stock, along with its broader industry, has been resilient over the last decade.
Valuation
Apple’s recent downturn has AAPL stock trading at 12X forward 12-month Zacks Consensus EPS estimates, which marks a new 52-week low and a huge discount compared to its year-long high of 19.7X. Therefore, we can say that Apple appears relatively cheap at the moment. And if we look back over the last 10 years, we can see that AAPL’s valuation picture is hardly stretched.
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Outlook
Looking ahead, Apple’s fiscal Q1 revenues are projected to pop 3.6% to reach $91.49 billion, based on our current Zacks Consensus Estimate. Meanwhile, the company’s fiscal 2019 revenues are expected to jump 4.5% to hit $277.67 billion. This might come as a shock to some investors since Apple’s Q4 revenues jumped 20% and its fiscal 2018 revenues surged 16% to touch $265.59 billion.
But much of last year’s growth was driven by higher-priced iPhone X sales. The company’s newer iPhones are a bit more expensive, but fiscal 2019’s results will be compared, in large part, to quarters that have already been somewhat artificially inflated by big revenue gains without unit sales growth.
Investors should be happy to note that Apple’s adjusted quarterly earnings are projected to surge by 21.3%. Plus, the company’s full-year EPS figure is expected to pop nearly 12%. Meanwhile, Apple’s mixed earnings estimate revision picture helps the company earn a Zack Rank #3 (Hold).
Bottom Line
At the end of the day, Apple, like Walmart (NYSE:T) and other behemoths, might have reached a point where the law of large numbers makes it extremely hard to post huge year over year revenue growth. With that said, Apple stock sits at a discount and boasts an investor-friendly forward P/E ratio at the moment. Let’s also not forget that Apple is dividend payer, which always comes in handy.
Plus, the company’s growing services business, headlined by Apple Music, has helped the company expand to challenge Spotify (NYSE:T) and others. Furthermore, Apple’s next big growth area could come as soon as next year when it is projected to launch a streaming TV service to challenge Netflix, Amazon, Disney (NYSE:DIS) , and AT&T (NYSE:T) .
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