With Apple (AAPL +0.73%) stock seeming to hit new highs every week in recent months, many investors are likely wondering whether shares are a buy, hold, or sell. According to one analyst, shares still have "room to run." Indeed, this analyst predicts shares could rise 13% over the next 12 months.
This bullishness for the stock comes not long after Apple reported better-than-expected fiscal fourth-quarter results, thanks to improving iPhone sales trends and accelerated growth in its services and wearables, home, and accessories segments.
Apple senior vice president of software engineering Craig Federighi. Image source: Apple.
The path to $296
Morgan Stanley analyst Katy Huberty, who has a $296 12-month price target for Apple stock, told CNBC on Wednesday that she believed the stock was "under owned" by the tech giant's biggest institutional shareholders.
"Even the top 100 ... holders of Apple (stock) have a position that's less than the S&P 500 weighting," Huberty said.
Her near-$300 price target represents 13% upside from where shares are trading at the time of this writing. Huberty believes strong demand for the company's latest iPhones, robust momentum in services, and continued share repurchases are key catalysts for the stock.
Fundamentals look good going into 2020
While it's impossible to know where shares will be one year from now, Apple's strong fundamentals relative to its valuation do suggest further upside for the stock is possible.
After going through several quarters of declining revenue, the tech giant's top line seems to have turned a corner. Apple's revenue increased 1% year over year in fiscal Q3 and 2% in fiscal Q4. Further, management's guidance for the current quarter suggests revenue growth will accelerate, once again. Earnings-per-share growth is also accelerating -- and analysts expect further acceleration in the profitability metric in fiscal 2020.
Is Apple stock really a buy?
With a price-to-earnings ratio of 22 (up from 15 one year ago), Apple may not be the strong buy it was a year ago. But it's still attractive. Consider some of Apple's key catalysts.
Services revenue, for instance, rose 20% year over year in fiscal 2019. This put total services revenue during the period at more than $46 billion, or 18% of total revenue. This is up from 14% of fiscal 2018 revenue.
Services' growth is key because the segment is more profitable than Apple's hardware revenue. Services gross margin in fiscal 2019 was 64%. Gross margin for Apple's hardware revenue during the same period was 32%.
Further, Apple's wearables, home, and accessories business is surging. The segment's revenue jumped 41% in fiscal 2019 and saw accelerated growth in the second half of the year.
Add in Apple's aggressive share repurchase program -- supported by a massive pile of cash and almost $60 billion in annual free cash flow -- and it becomes quite easy to justify Apple stock's valuation today.
For investors willing to hold the stock for the long haul, Apple stock still looks like a buy.
