I am neutral on Apple (AAPL) as it enjoys strong growth momentum, a lengthy growth runway, a powerful moat, and bullish sentiment from Wall Street analysts. That said, it looks pricey relative to its recent historical valuation multiples, and its average price target implies doesn’t imply too much upside potential.
Apple is a multinational company that operates in the computer hardware, computer software, consumer electronics, and online services industries. The company was formed about 45 years ago in 1976 and has since experienced significant growth. Apple had 516 retail stores across the globe and more than 147,000 employees as of 2021.
Reportedly, there are more than 1.8 billion Apple products currently in use around the world. What began as a personal computer producer and distributor company has now expanded into a world-renowned brand of gadgets and technologies.
Strengths
Apple is considered the world’s most valuable company with the highest brand loyalty. It was the first publicly traded, US-based company that was valued at $1 trillion in 2018, and it beat its own record in 2020 when it was valued at $2 trillion. Apple also recently hit a $3 trillion valuation. The company has one of the strongest global footprints, with physical stores in 25 countries and online stores in approximately 100 countries.
Its proprietary hardware, software, services, and applications also give it a unique edge over its competitors. The strong advertising and marketing tactics has landed Apple the most loyal customers across the globe. Apple has come a long way since its inception, and the brand has created an unrivaled value in the market.
Recent Results
Over its past twelve months, Apple has generated strong results, including over $378 billion in revenue, historically high gross, operating, and net profit margins of 43%, 30.9%, and 26.6%, respectively. The company also continues to report extremely strong earnings per share, with the figure soaring to $6.02 over the past twelve months.
Valuation Metrics
AAPL stock looks richly valued here as it trades above its three-year valuation multiple averages on a forward enterprise-value-to-EBITDA ratio and forward price-to-normalized-earnings basis. Its forward EV/EBITDA ratio is 20.2 times compared to its historical average of 17.4 times, and its forward price-to-normalized-earnings ratio is 27.1 times compared to its historical average of 24.5 times.
Meanwhile, analysts expect revenue to increase 8% and normalized earnings per share to increase by 9.5% in Fiscal 2022.
Wall Street’s Take
Turning to Wall Street, AAPL earns a Strong Buy consensus rating based on 23 Buys, five Holds, and no Sell ratings in the past three months. Additionally, the average Apple price target of $193.07 puts the upside potential at 12.9%.
Summary and Conclusions
AAPL stock is backed by strong growth momentum as a dominant consumer electronics business and enjoys bullish sentiment from Wall Street analysts. It is the most profitable company in the world, has a fortress balance sheet, and is buying back shares hand-over-fist. Last but not least, its brand is extremely valuable and gives it a wide moat competitive advantage.
That said, the stock price does not look compelling here as the valuation multiples are above recent historical averages, and the analyst consensus price target implies only modest upside potential.
As a result, investors might want to wait for a pullback in the stock price before adding shares.
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