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Apple Stock Is Down 20% -- Time to Buy?

By Daniel Sparks – Sep 22, 2020 at 9:06AM

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The tech giant has quietly lost a fifth of its value in less than a month.

As part of a sell-off of tech stocks during the first few weeks of September, Apple's (AAPL -5.50%) market capitalization quietly took a $500 billion haircut. While shares seemed to find a bottom on Monday when the stock rose 3%, the tech giant's stock is still notably down 20% from an intraday high on Sep. 1.

With a fifth of Apple stock's value getting erased in less than a month, is this a good buying opportunity? Or is there merit to the stock's much lower price?

A bar chart showing a rebounding trend.

Image source: Getty Images.

Key catalysts

After a 20% sell-off, Apple stock is definitely worth taking a closer look at. The tech company has been firing on all cylinders recently, pulling off a quarter of double-digit top- and bottom-line growth during a pandemic.

During Apple's third quarter of fiscal 2020, which ended on Jun. 27, the tech company managed to grow revenue across every product segment and region. The strong growth captured the company's incredible resilience; Apple suffered many store closures during the period, yet demand remained robust. Total fiscal third-quarter revenue rose 11% year over year and earnings per share jumped 18%, marking a record June quarter for the company.

While Apple's broad-based momentum in fiscal Q3 was noteworthy, there are some specific catalysts on the horizon for Apple that are worth calling out.

First, there's the upcoming launch of new iPhone models. New versions of Apple's popular smartphones are expected to debut in October. Accounting for over half of Apple's revenue, the new devices could move the needle for the tech company's business. Many analysts expect the new iPhones to feature 5G connectivity -- a potential key selling point for the segment.

Then there are Apple's fast-growing wearables and services businesses. Trailing-12-month services revenue is up 19% year over year. Trailing-12-month wearables, home, and accessories revenue is up 32% over this same time frame. Together, these two segments account for approximately 30% of Apple's revenue, encapsulating a major long-term growth opportunity for the company.

Apple stock: Buy, sell, or hold?

With momentum like this, Apple is a stock worth owning. But is it a buy at the level it's at today?

A person analyzing charts on a laptop.

Image source: Getty Images.

Unfortunately, Apple's current valuation is still very pricey -- even after the stock's downturn. The company is trading at more than 33 times earnings. But Apple stock arguably deserves a frothy valuation. The tech giant consistently demonstrates competitive advantages in a number of different ways, including its loyal customer base, constant product innovation, pricing power, and brand recognition.

So, is Apple stock a buy, sell, or hold? I'd argue that shares are worth buying after their 20% sell-off. Investors, however, should expect significant volatility and shouldn't buy shares unless they plan on owning for five years or more. While shares are down 20% from recent highs, they're still notably up more than 100% over the past year. It wouldn't be surprising to see shares sell off even more as some investors take their profits.

Investors, of course, should mind the risks that come with buying any individual stocks. There's always a chance that competition could be tougher than expected, or that Apple could run into unforeseen company-specific or broader market challenges. Over the long haul, however, this does seem to be like a solid entry point into a great market leader.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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