Please ensure Javascript is enabled for purposes of website accessibility

Approaching $200, Is Apple Stock Still a Buy?

By Daniel Sparks – Updated Apr 14, 2019 at 7:47PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Did investors who didn't pick up shares of the tech giant during the stock's recent pullback miss out?

Shares of Apple (AAPL -3.00%) have risen sharply recently. The stock is up 25% in the past three months and 38% since Jan. 3 -- the day after Apple CEO Tim Cook warned that fiscal first-quarter revenue would be significantly worse than management's initial guidance for the period. Is it too late for investors to buy shares?

In December, when shares were trading around $165, I argued that the stock was a buy due to the company's momentum in services and its opportunity to further monetize users across its large installed base of active devices. With shares up 18% since that article, is the stock still attractive?

Apple store in Bangkok, Thailand.

Image source: Apple.

A conservative valuation

Shares of Apple closed the trading day on Thursday at about $195. While the stock certainly isn't as attractive as it was, it's still a compelling stock at this level.

Its price-to-earnings ratio, for instance, is just 16.1 at the time of this writing. This compares to an average price-to-earnings ratio of 21 for stocks in the S&P 500. In addition, considering Apple's trailing-12-month earnings per share is up 17% year over year and that the company even managed to achieve record EPS in its worse-than-expected first quarter, a P/E of 16.1 for Apple seems low.

Also, Apple's trading at an attractive valuation relative to its underlying free cash flow, or the cold, hard cash left over after both operations and capital expenditures are accounted for. Apple generated a whopping $62 billion in free cash flow over the trailing 12 months, giving the Cupertino, California-based company massive cash flow for things like dividends, share repurchases, and acquisitions. And don't forget Apple's net cash of $130 billion. Apple, therefore, trades at just 15 times its free cash flow and seven times its net cash.

Sure, Apple could face earnings and free cash flow headwinds during fiscal 2019, as the company is up against tough comparisons in fiscal 2018. In fact, the consensus analyst estimate for Apple's fiscal 2019 earnings per share is $11.40, down from $11.91 in fiscal 2018. But analysts also expect a prompt return to growth, guiding for earnings per share of $12.76 in fiscal 2020.

Check out the latest earnings call transcript for Apple.

Key catalysts

Rounding out the reasons why Apple stock is attractive today is the company's prospects beyond iPhone.

Apple's second-largest segment, services, is growing rapidly and there's no slowdown in sight. Services revenue has increased from less than $8 billion in calendar 2010 to more than $41 billion in calendar 2018. And growth in the segment remains strong, with trailing-12-month services revenue up 27% year over year.

In addition, Apple's "other products" business, which was recently renamed to "wearables, home, and accessories," saw trailing-12-month revenue rise 34% year over year.

Highlighting how important these two catalysts are becoming to Apple's growth story, they account for 22% of the tech giant's total revenue when combined.

Apple's conservative valuation and its strong prospects for its fast-growing services and wearables, home, and accessories segments mean shares still look attractive around $200.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$138.20 (-3.00%) $-4.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.