Tech giant Apple (AAPL) recently became the first company in history to reach a valuation of $3 trillion when its shares reached $182.86 earlier in the month. While the $3 trillion market cap milestone was an impressive accomplishment, driven by successful new product launches, including the iPhone 13, there were questions being raised suggesting this could be as good as it will get for Apple stock.
Some of these concerns have been realized. Investors want to know whether it’s still worth it to bite into Apple; the answer to this question will become more clear when the iPhone maker reports first quarter fiscal 2022 earnings results after the closing bell Thursday. Since reaching that $3 trillion milestone, Apple's stock has gotten sliced, falling some 12%. The shares are down 8.5% year to date, trailing the 7.73% decline in the S&P 500 index. In 2021, Apple saw gains of 35%. Is the recent decline an overreaction?
The market is re-assessing tech valuations and Apple has seemingly gotten caught in that. The Street forecasted revenue for January quarter to grow just 6.5%, while the subsequent quarters may struggle due to the chip shortage. While the company's long-term revenue capability remains intact, any reduction is certain to affect Apple’s near-term revenue. This, however, highlights the importance of Apple’s Services business, which now accounts for almost 30% of total revenue. Investors are hoping for more clarity and conviction towards a bullish thesis on Thursday.
In the three months that ended December, Wall Street expect the Cupertino, Calif.-based tech giant to earn $1.89 per share on revenue of $118.28 billion. This compares to the year-ago quarter when earnings came to $1.68 per share on revenue of $111.44 billion. For the full year, ending September, earnings are expected to rise 2% year over year to $5.74 per share, while full-year revenue of $382.29 billion will rise 4.5% year over year.
The downbeat projected fiscal year-over-year growth of 2.3% and 2% for full-year EPS and revenue, respectively, is one major reason Apple stock is seemingly being re-priced by the market. The lack of explosive growth doesn’t support a higher multiple. It also doesn’t help that interest rates are expected to rise, while inflation is also running hot. That said, Apple has navigated through these headwinds before. But as the market speculates about Apple's future and the long-term strength of iPhone sales, there are several reasons for investors to want to bite into Apple shares now.
Let’s evaluate Apple's risk/reward profile with a few scenarios I expects will propel the momentum forward. For the just-ended quarter, estimates calls for the company to have sold more than 40 million iPhones during the holiday quarter. Notably, this is despite the near-term supply chain challenges. What’s more, driven by the recent surge in 5G-enabled devices, there’s a great chance that Apple might have grown market share in China — its second-largest market.
Elsewhere, Apple is rumored to be launching a AR glasses of its own at some point this year, which would put the company at the center of the metaverse battle. Apple’s investments in consumer hardware give it a strong advantage over its competitors. The metaverse has the potential to boost the company's value by $20 per share, according to Wedbush analyst Dan Ives.
Investors on Thursday will nonetheless focus on the company’s guidance for any clues about how Apple’s new devices will perform. Could Apple surprise the market with a metaverse-relevant announcement? It remains to be seen what direction the company takes. But these recent headwinds present an opportunity for the long term.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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