Investors weren't too impressed with Apple's (AAPL -0.16%) fiscal fourth-quarter earnings release earlier this month, largely because the company's guidance fell short of what the Street was modeling for. The added uncertainty around changes to financial reporting probably didn't help much either, as shareholders prepare to lose insight into iPhone, iPad, and Mac unit volumes. Prominent suppliers have also been warning of potentially weak demand for the new iPhones, including Austria's AMS, which reduced its fourth-quarter outlook just this morning.

That's all contributed to shares shedding 15% of their value since the report. Here's why it could be a buying opportunity in disguise.

iPhone XS and XS Max

Image source: Apple.

Stop focusing on unit sales

For starters, Apple investors have a documented history of overreacting to supply chain rumors (myself included, at times), and that's partially what's going on currently. Despite Apple's best efforts to shift focus away from iPhone units, investors still stubbornly remain fixated on how many iPhones the company sells in any given quarter, which CFO Luca Maestri argues is "not necessarily representative of the underlying strength of our business."

The services business continues to grow steadily, and it enjoys high-margin recurring revenue. The segment is receiving an artificial boost due to Apple adopting new revenue recognition standards, and under the new reclassification generated $39.7 billion in revenue in fiscal 2018 (compared to $37.2 billion as previously reported). It's worth noting that the new classification was not considered when Apple first set its goal to double services revenue by 2020 relative to fiscal 2016.

Word on the Street

Morgan Stanley this morning reiterated its overweight rating on shares alongside a $253 price target, similarly arguing that the market is still "narrowly focused on units, despite the increasing value of Apple Services." Analyst Katy Huberty says shareholders should appreciate the services business more, as the global smartphone market has been maturing for years. Peaking iPhone unit volumes were always inevitable.

Additionally, Apple was able to ramp production faster this year, after facing iPhone X supply constraints last time around. That explains why it is reportedly reducing orders from suppliers already. There's also little reason to overthink supplier warnings when the tech titan has already issued its own forecast. Keep in mind that Apple has beat its own December quarter forecast for the past two years. The company has a reputation of issuing conservative guidance.


Revenue Guidance

Actual Revenue

Q4 2016

$76 billion to $78 billion

$78.4 billion

Q4 2017

$84 billion to $87 billion

$88.3 billion

 Data source: SEC filings.

Beyond services, massive buybacks will continue to drive earnings growth, in Huberty's view. Apple has significantly accelerated repurchase activity in the wake of tax reform last year. The company still has $122.6 billion to return to shareholders before it reaches its net cash neutral goal. Meanwhile, Apple trades at a cheap 17 times earnings -- a discount compared to the S&P 500's 22 times earnings multiple. There is a long list of reasons this sell-off is overdone, but that's good news for long-term investors looking for a buying opportunity.