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Apple Seeded with Upside Potential
Stock Analysis & Ideas

Apple Seeded with Upside Potential

Valuations are certainly becoming stretched in the market today. Bond yields remain near historical lows, and while yields have risen somewhat in recent months, investors are increasingly pricing in a lower-for-longer scenario today. Indeed, inflation appears to be transitory. For mega cap technology stocks such as Apple (AAPL), this is a good thing.

Of course, Apple has been one of the best-performing stocks on the Nasdaq over the long-term. That said, this company’s year-to-date return of only 5.3% leaves much to be desired, when compared to the performance of its peers.

Let’s take a look at Apple, and see if this stock could be poised for a move to new all-time highs this year. (See Apple stock charts on TipRanks)

Growth Profile Remains Solid for AAPL Stock

With any long-term investment, numbers matter. In the case of Apple, one of the key considerations with this stock is how fast the company can grow over the long-term.

On a historical basis, AAPL stock has performed quite well. This is the largest company in the world by market capitalization, yet it still finds a way to grow its top line by more than 20% annually. Granted, forward growth expectations for Apple aren’t as bullish. The company’s projected forward revenue growth rate is around 12%. However, the fact that EBITDA and EPS are growing at a much faster clip than revenue is a very bullish trend for investors.

Indeed, much of the recent outperformance in AAPL stock in recent years can be tied to multiple expansion. Yes, Apple’s earnings per share have grown substantially over time. However, the company’s valuation multiple has expanded at an even more rapid rate.

There are reasons for this, and earnings quality is typically one of the top reasons most investors give for Apple’s outsized valuation. However, one could also argue that in the age of rock-bottom interest rates, a multiple of less than 30-times trailing earnings isn’t bad.

Everything’s relative today, and on a relative basis, Apple is one of the highest-quality growth stocks on the market. Indeed, until this company gives a reason for investors to steer clear, capital inflows into quality growth stocks like Apple are likely to continue.

Risks Do Exist, So Trade Carefully

That said, as with any stock, being wary of the risks of any investment is an important part of the due diligence investors must perform. (See Apple Risk Factors page on TipRanks)

In the case of Apple, size has been one of its biggest strengths. As Apple’s market capitalization expanded, so too did its weighting in index funds. In the age of capital inflows we’ve seen of late, this has been very bullish for those holding AAPL stock.

Of course, this catalyst also works in reverse. A mass exodus of capital from equity markets could be a disproportionately bad thing for this mega-cap stock. Accordingly, investors worried about some sort of sizable correction ought to be wary of holding onto stocks that effectively represent more of the overall market than others.

Additionally, Apple has recently caught the ire of regulators for various practices many believe to be monopolistic in nature. The company’s highly-publicized battle with Epic Games over fees charged at Apple’s App store have once again brought about questions of the degree of market power Apple wields. Restrictive listing rules and high fees have forced developers, advertisers, and others to pony up.

One could argue that Apple’s innovative ecosystem is deserving of such fees. After all, it is a free market. If developers and industry partners do not like the fees, they can go elsewhere. That’s capitalism.

At the same time, regulatory scrutiny is a headwind investors continue to battle in big tech. With a Democrat House and Senate now in place, more emphasis is likely to be placed on how to best regulate the companies that currently have a stranglehold on how we live in this tech-heavy world.

What Analysts Are Saying About AAPL Stock

According to TipRanks’ analyst rating consensus, AAPL stock comes in as a Moderate Buy. Out of 27 analyst ratings, there are 20 Buy recommendations, 5 Hold recommendations, and 2 Sell recommendations.

As for price targets, the average analyst price target is $157.92. Analyst Apple price targets range from a low of $90.00 per share to a high of $185.00 per share.

Bottom Line

Investors in AAPL stock likely have nothing to fear, over the long-term. Yes, near-term headwinds could cause some volatility. However, over the long-term, growth stocks such as Apple with higher-than-average earnings growth are likely to continue to outperform.

In the absence of any serious catalysts suggesting that the party’s over for Apple’s earnings growth, this is a top-notch tech stock to hold today. Indeed, buying AAPL stock on dips has proven to be a very prudent strategy, which still has not changed today.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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