Shares of Apple (AAPL -1.22%) have been pummeled in recent weeks, along with the broader market. The tech giant's stock price has slid 31% since Feb. 19. That's about in line with the S&P 500's 34% decline over this same timeframe.
The global coronavirus outbreak and its likely negative impact on near-term sales and the economy, of course, is the primary reason for Apple stock's big decline. While investors have good reason to expect companies like Apple to face headwinds amid this pandemic, has the tech giant's sell-off gone too far?
It's arguable that Apple shares have been oversold in this market downturn, giving opportunistic investors an attractive entry point below $225 per share.
Here are four reasons investors may want to consider buying Apple stock now.
Image source: Apple.
1. Apple's second largest segment may see a boost
Perhaps one of the biggest concerns of investors in tech stocks, particularly those that sell tech hardware, is how the coronavirus pandemic will affect global supply chains and shipments. Apple isn't exempt from these concerns, as it has a sprawling supply chain spanning many countries. Indeed, the company already warned it will miss its fiscal second-quarter revenue guidance, citing production challenges and weaker demand in China.
Fortunately, however, Apple has become far more than a tech hardware company. Indeed, the tech giant's second largest segment after iPhone is now its services business. The segment includes revenue from digital sales and subscriptions in the App Store, advertising, and services like iCloud, AppleCare, licensing, and more.
This services business has been booming, fueled by an installed base of active devices that exceeded 1.5 billion at the end of 2019 -- up more than 100 million from the end of 2018.
The tech company's services revenue rose 17% year over year in the first quarter of fiscal 2020 (the fourth calendar quarter of 2019), driven by double-digit growth in all of the company's geographic segments. With more people spending time at home amid the coronavirus outbreak, it wouldn't be surprising to see Apple's services revenue get a lift during this time.
2. Wearables revenue is soaring
While Apple's hardware supply chain issues during this pandemic will probably slow production and temporarily hurt sales, investors shouldn't ignore Apple's hardware segments altogether. Even with slowing production and the closing of Apple retail stores in some markets, there's still one product category that could continue to see sales growth: wearables, or sales of the Apple Watch, AirPods, and Beats products.
Apple's wearables business is still in its early innings, and these products could still see double-digit year-over-year sales growth even after being negatively impacted by supply chain troubles and retail store closures. Highlighting the segment's rapid growth, wearables revenue increased 44% year over year in fiscal Q1.
3. Apple's products are more important than ever
While supply constrained iPhone production and softer demand for the smartphone may ultimately lead to year-over-year declines in revenue in both fiscal Q2 and fiscal Q3, this coronavirus outbreak is putting a higher intrinsic value on the devices we use to connect to the internet and ultimately to get our work done, communicate with others, and enjoy digital entertainment.
When the coronavirus is finally suppressed and the economy rebounds, Apple could benefit from increased investment from consumers and businesses in the technology we use every day. This could benefit iPhone, iPad, and Mac sales.
4. The tech giant company is cash-rich
Finally, healthy balance sheets and profitability become more important during times of uncertainty. On this front, Apple stands out as a tech company prepared to weather just about any storm. The company boasts nearly $100 billion of net cash and generates substantial free cash flow -- the cold, hard cash left over after regular operations and business reinvestment covered. Trailing-12-month free cash flow was $64 billion, easily justifying Apple's nearly trillion-dollar market capitalization.
Investors buying shares of Apple today, of course, should be prepared to watch the stock fall further. It's nearly impossible to buy at the exact bottom. So it's good to anticipate more volatility ahead, particularly during these uncertain times. But there's a good chance that a few years into the future, Apple stock below $225 will look like a great entry point.
