Against popular notions that the iPhone 7 would tank, the latest iteration of the popular phone series is proving to be a hit, as stores worldwide run out of both iPhone 7 and 7 Plus models the first day within hours.
Stronger-than-expected demand for the iPhone 7 Plus has led to global supply delays, putting many buyers on hold, including those in Singapore. The same holds true for its newly-released jet black iPhone 7 model.
For Apple Inc., news of soaring iPhone 7 sales and pre-orders have caused its shares (AAPL) to rise US$12 for the week and closed last Friday’s (September 16) trading at US$114.92. The rise came as investors regain confidence in the tech-giant after an unprecedented dip in its revenue – a first in 13 years – in the March quarter this year, amid a slowing Chinese market.
In May, AAPL traded as low as US$91.85 – the lowest it’s been in nearly two years.
So, now that Apple seems to have turned the corner after a rough couple of quarters, is now a good time to buy AAPL stock?
In 2001, Apple reinvented itself with the introduction of the iPod digital music player. It followed up with the iPhone in 2007 and the iPad tablet in 2010, and has steadily been gaining market share over the past decade with the iPhone as its main revenue generator.
The release of the iPhone 6 in September 2014 – Apple’s best-selling iPhone to date – saw a 55% spike in the AAPL on its release date.
But what goes up must come down and after an amazing run, tumbling iPhone sales in 2016 set off speculation that they’ve already passed the “peak iPhone” and have nowhere to go but down for its star product.
Of course, along came the iPhone 7, which surpassed all expectations and gone against the conventional wisdom that it would be a dud.
As past performance suggests, the launch of a new iPhone does set a pretty solid guide to the direction of the AAPL afterwards. Does this mean that investors should jump into Apple only when there’s an impending iPhone release? Also, is the stock worth buying now?
Well, yes and no. For example, although the stock generally rises from the iPhone, it lost 32% of its value in the year after the iPhone 5, and gained only 16% after the iPhone 6s so it’s not always guaranteed that you’ll make a profit from an iPhone launch.
Here’s how Apple stocks have done after every iPhone release:
That said, Apple’s stocks have been consistently on the rise and have gained nearly double its value since the iPhone 4s.
Today, the stock sells for about US$115, which makes it more accessible to individual investors, compared to US$500 to US$700 per share prior to the 2014 split. This means that today, people who could never afford to buy the share previously may now add it to their investment portfolio.
However, investors thinking of buying Apple stocks would need holding power and a strong stomach because although the company is financially strong, the stock does go through periods of volatility. If you’re looking to make a quick buck, then Apple stocks might not be for you.
The bottom line is, it can be a risky bet trying to time Apple stock. Holding it for the long-term seems to be where the real gains are.
As a company, Apple Inc. is cash-rich and has a quarterly debt-to-equity-ratio of 0.6712 (as of June 30, 2016), according to Nasdaq. So, it isn’t financially stressed by any means.
Further, statistics from the American stock exchange shows that the tech giant trades at a forward PE (per-share-earning) of just 10.77, which is pretty cheap, especially for a company with strong cash flows. In addition, AAPL has a low PEG (price/earnings to growth ratio) of 1.56 on Nasdaq, so it’s current share price is not bloated when factoring growth expectations over the next three to five years.
Apple also has an EV/EBITDA (a ratio used to determine the value of a company) of 6.67. An EV/EBITDA value below 10 is commonly interpreted as healthy and average by analysts and investors. As of 2015, the average EV/EBITDA value for the overall market is 14.7.
This metric is also among the most important measure for evaluating M&A transactions
Apple has been paying shareholders a dividend about a month-and-a-half after the end of each fiscal quarter since it declared its modern dividend plan in mid-2012.
In its most recent earnings reports, Apple announced a raise in its quarterly dividend and now gives out US$0.57 per share every quarter. Its current dividend yield stands at 1.98%.
While it might not look particularly attractive at this point, it is important to note the rate at which the corporation has been increasing its quarterly dividend.
Apple has raised its dividend every year over the last four years. Since November 2012, AAPL’s quarterly dividend has grown by 50%.
More importantly, Apple’s strong cash flow is sufficient to support more dividend growth, so the company should look pretty promising to long-term investors.
While the iPhone continues to be its star product, service is an emerging unit for Apple. Apple services currently include Apple Pay, the iTunes Store, Apple Music, and iCloud.
It is estimated that services will represent 29% of Apple’s gross income in 2020. According to Credit Suisse, that’s up from 15% right now.
In addition, Apple recently announced that it had invested US$1 billion in a Chinese ride-sharing company, putting the company in direct competition with Uber.
Market observers believe that the move will help solidify Apple’s quest to become the leader in the much-hyped self-driving revolution of the future.
This could mean that by as early as 2020, Apple will be a lot less dependent on iPhone profits, which currently make up nearly two-thirds of the company’s profits. Slowing iPhone sales have been a rising concern as the smartphone market continues to get more saturated.
All in all, even if it may seem that Apple is losing its innovative edge, it might still pay to think about adding Apple in that small sliver of your long-term investment portfolio.