Harnessing and monetizing new technology is the name of the game in tech. The metaverse, augmented reality (AR), and virtual reality (VR) are all developing into the next big wave of technological change. Apple (AAPL 0.52%) has shown it has the ingenuity and know-how to catch new tech waves that come along and ride them for all they are worth, developing new ideas and profiting from them along the way.
Investors have caught on to Apple's ability to do this and rode their own profitable wave in 2021 as the stock returned nearly 36% in gains for the year. Some of those gains are tied to anticipation for 2022 and rumors that Apple is getting closer to releasing its AR and VR headset.
Let's take a closer look at what Apple might be up to and why the stock has so much potential in 2022.
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Augmented and virtual reality on deck
The potential for AR/VR products is incredible. These technologies can help with project visualization, communication, design functions, and more in the business world. Outside of business uses, consumers will be able to access products to interact socially, visualize products in rooms, virtually relive events, and play games. And that's just the start. A successful launch of an Apple AR/VR headset could be a massive boost to earnings. The fact that Apple has a stellar history of new product adoption and a user base of 1.5 billion Apple product owners to market to suggests a launch with lots of potential.
Multiple reports put the launch date for the headset as sometime in 2022. Meanwhile, the company has reportedly hired Meta Platforms' public relations head to prepare for the launch. Apple is also reportedly planning an upgraded, lighter headset that will launch in 2024. If the 2022 launch is successful, this product could create an entirely new and highly profitable revenue stream alongside the iPhone, Mac, iPad, and others.
Image source: Getty Images.
Apple revenue and margins are on fire
Led by an increase in iPhone sales, fiscal 2021 (ended Sept. 30) saw Apple return to the growth investors have sought for several years. Top-line revenue exceeded $365 billion, a full 33% over fiscal 2020. EBITDA came in at over $120 billion, a 55% increase over fiscal 2020.
Date source: Apple. Chart by author.
Margins for fiscal 2021 were also up substantially from fiscal 2020. Gross margins climbed to 42%, while operating and net margins were an impressive 30% and 26%, respectively. This, combined with the increased revenue, helped diluted earnings per share (EPS) rise from $3.28 in fiscal 2020 to $5.61 in fiscal 2021. Investors have clear reason to be highly enthusiastic heading into 2022.
Total yield is higher than you may think
Apple pays investors a relatively small dividend which currently stands at $0.22 per share per quarter. The dividend has been raised for each of the past nine years. While the yield is just 0.5%, much of the reason for that is the big runup in the stock price depressing any yield. That's actually a good thing.
Apple has found other ways to return its excess capital to shareholders. In early 2021, Apple authorized its stock buyback program to increase from $225 billion to $315 billion. Buybacks can boost the stock price by lowering the available shares on the market, making each more valuable. In fiscal 2021 alone, the company returned $85.5 billion to shareholders by repurchasing stock. This amounts to nearly 3% of the current market cap. When combined with the dividend, the yield looks much more attractive. Because of buybacks, the number of average quarterly diluted shares outstanding has dropped 22% over the past five years. Another advantage is that share buybacks are tax-deferred for investors. The buybacks, combined with the increasing dividend, make Apple's yield quite attractive for long-term investors.
Is Apple still a buy?
Apple stock has made impressive gains in 2021, and investors anticipate big things in 2022. Revenue rose considerably over 2020, as did margins and cash flow. The company continues to pay a small dividend and execute substantial share buybacks. Some investors may be uncomfortable with the current forward price-to-earnings ratio, which at over 31 is above historical averages. The reasons for this are simple: Apple had the remarkable fiscal 2021, the company has a new product upcoming, and it has a history of successfully launching new products. There has never been a bad time for long-term investors to invest in Apple stock.
