Apple stock outperforms in a bear market. Is it time to buy?
Apple (NASDAQ:AAPL) needs a little introduction. With a market valuation of $2.4 trillion, it is the largest publicly traded company in the United States, even after factoring in a 16% decline in its share price since the start of the l ‘year.
Apple didn’t build its business in a single year. It’s a story investors should watch over the long term because since its IPO in 1982, it has returned over 117,600%. In other words, an investment of just $10,000 back then would be worth over $11.76 million today – assuming you held on the whole time.
Last week, the multinational tech giant released its annual financial results for its 2022 fiscal year, which ended September 24. The results beat Wall Street expectations for revenue and earnings per share, but they also reflected some weakness in a few different areas.
The stock price initially jumped after the release, but has since calmed down a bit. Should long-term investors follow the lead of short-term traders and take the opportunity to buy Apple stock ahead of further long-term growth?
Looking back on a difficult year
Despite the upbeat report, Apple is coming off of a tough year, although it’s certainly not the only one. High inflation, supply chain issues and rising interest rates have stung several sectors of the economy. Businesses that rely on consumer spending have been hit hard by tighter household finances, and Apple’s pricey devices — like its flagship iPhones — are falling into product categories seeing cuts.
In its 2022 fiscal year, Apple’s revenue grew only 7.8%, well below the 33.2% growth rate of the previous year. Of course, the economy was booming in 2021, with the Federal Reserve keeping interest rates artificially low and the US government rolling out stimulus dollars in an effort to mitigate the economic impacts of the ongoing pandemic. The economic environment in 2022 is very different.
Apple launched a slew of new products in September that are expected to boost its sales over the upcoming holiday season. Its new iPhone 14 already appears to be having an impact: Apple’s smartphone revenue jumped 9.6% in its fourth fiscal quarter, a nice improvement from the 2.7% increase in third fiscal quarter.
Similarly, after a year-over-year decline in the third quarter, sales of Mac computers and laptops jumped 25% in the fourth quarter to a quarterly record of $11.5 billion. Wearables revenue jumped 9.8%, driven by demand for the new Apple Watch Ultra and second-generation AirPods Pro.
Apple’s services segment remains key
Apple began releasing financials for its services segment separately in 2017, and since then investors have been paying close attention to these numbers due to the segment’s strong growth and much higher gross profit margins.
Apple’s services segment includes just about everything it offers through a subscription, from iCloud to Apple Music to Apple TV+. As the fourth quarter closes, investors are wondering if consumers are getting tired of subscriptions. This is a question that arises more after the streaming giant netflixThe subscriber base of has contracted in the first two quarters of 2022.
Price hikes have been one of the drivers of Netflix’s decline, and Apple recently raised the price of its popular Apple Music subscription, for example. The last report didn’t have the answer, so we’ll have to wait and see if the recent rise has a negative impact. Relentless competition is another problem: consumers are spoiled for choice when it comes to streaming platforms in general, and for many people it’s becoming increasingly difficult to justify the expense of continuing to subscribe. to anyone they wanted, especially in this economy.
This combination of factors could explain why Apple’s services segment revenue grew in fiscal 2022 at its slowest pace since the company began reporting. It could also be that the pandemic has resulted in strong subscription growth in 2021 and 2022 is only feeling the hangover effects of the outsized growth of the previous year. This is something to watch next year.
Even with the slowdown, Apple still set a service revenue record in the fourth quarter thanks to 900 million paid subscriptions in its ecosystem.
Apple has also innovated this year in the segment. It expanded its Apple Pay product by introducing Apple Pay Later, its own version of the “buy now, pay later” (BNPL) installment loan services that have become popular recently, especially among younger shoppers. This could pull market share from credit card providers, and since Apple has an installed base of nearly 2 billion active iPhones, its adoption could be much faster than its BNPL rivals.
Why Apple Stocks Could Be a Buy Right Now
Yes, Apple’s growth has slowed in fiscal 2022. And yes, economic weakness may linger for a little longer. Apple CEO Tim Cook highlighted those issues in the company’s earnings call, along with geopolitical tensions in Europe and climate change, as areas of concern.
But these challenges are not unheard of. Apple weathered the recessions of the 1980s and 1990s, not to mention the tech wreckage of the early 2000s, which was followed by the Great Recession of 2007-09. It overcame them all and became America’s most valuable company.
Consumers now have a record number of active iPhones and a record number of Apple subscriptions. For shareholders, Apple generated record net income of $99.8 billion (or $6.11 per share) in fiscal 2022, and it returned a record $89 billion to shareholders through share buybacks closer to $15 billion in dividends.
The business is a cash-generating machine and, despite its short-term challenges, it is set to continue its long-term streak of success. With Apple shares trading down 16% year to date, now may be a good time to buy, especially for those with an investment horizon of at least five to ten years.
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Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool holds posts and recommends Apple and Netflix. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.