Apple (AAPL -2.34%) smashed past Wall Street estimates with a solid set of numbers when it released its fiscal 2022 first-quarter results on Jan. 27, putting to bed any concerns about supply chain challenges hurting the tech giant's terrific momentum.
Apple investors were a happy lot after the earnings report, as shares of the company rose 7% on Jan. 28. It wouldn't be surprising to see this tech stock head higher thanks to the multiple growth drivers it can take advantage of. Let's look at the reasons why Apple is a top growth stock to buy right now.
Apple thrives despite challenges
The iPhone maker posted record revenue of $123.9 billion for the quarter that ended on Dec. 25, 2021, an increase of 11% over the prior-year period. The company's net income surged 21% year over year to a record $34.6 billion, or $2.10 per share. These incredible numbers easily cleared Wall Street's expectations of $1.89 per share in earnings on $118.6 billion in revenue.
What's impressive is that Apple delivered such impressive growth despite supply chain constraints. CEO Tim Cook had warned in October 2021 that supply-related constraints could hurt Apple's revenue by more than $6 billion last quarter. Cook said on the latest earnings conference call that the company "experienced supply constraints that were higher than the September quarter."
However, robust growth in sales of all of Apple's products -- barring the iPad, which bore the brunt of supply challenges -- and record revenue in the high-margin services business led to the company's biggest-ever quarter. The good part is that things are set to get better for Apple from here. Though CFO Luca Maestri didn't issue any specific guidance, he indicated that Apple is set to sustain its momentum in the current quarter:
We expect to achieve solid year-over-year revenue growth and set a March quarter revenue record despite significant supply constraints, which we estimate to be less than what we experienced during the December quarter.
So Apple could step on the gas as the year progresses thanks to the improving supply chain conditions. But this is just one of the reasons why you may want to buy the stock.
Jumping into the metaverse
There is a lot of chatter about Apple jumping into the metaverse, the latest buzzword in technology that aims at blurring the boundaries between the virtual and the real worlds. Third-party reports indicate that Apple is developing a headset to tap into the metaverse opportunity. Cook gave legs to such reports while responding to Morgan Stanley analyst Katy Huberty's query regarding the company's metaverse plans on the latest earnings call.
He said that the company sees "a lot of potential in this space and [is] investing accordingly." Cook also added that Apple's app store currently has more than 14,000 applications that bring AR (augmented reality) experiences to customers, which is an indication that the company may be looking to take advantage of both the hardware and software side of the metaverse.
That would be a smart move from Apple, as various metaverse-related products and services are expected to generate nearly $829 billion in revenue by 2028, growing at an annual rate of 43% as per a third-party estimate. Such impressive growth would be driven by the adoption of metaverse-related hardware, software, and services. Apple has expertise in both hardware and services, which it may be able to replicate in the metaverse and make the most of the lucrative end-market opportunity on offer.
The services business is going from strength to strength
Apple's services revenue hit an all-time record of $19.5 billion last quarter, growing 24% over the prior-year period and at a faster pace than the growth in the company's overall revenue. The services business produced 15.7% of Apple's revenue last quarter, up from 14% in the year-ago period.
The growing influence of the services business on Apple's top line bodes well for the company. That's because the services business delivered a gross margin of 72.4% last quarter, way higher than Apple's overall gross margin of 43.8%. It is worth noting that Apple now has an installed base of 1.8 billion active devices, which is likely to keep growing as the company introduces new products to expand its ecosystem.
For instance, the rumored 5G-enabled iPhone SE, which is expected to be released soon, could expand Apple's installed base substantially. JPMorgan Chase estimates that such a device could help Apple target 1.4 billion users of low- to mid-range Android smartphones, as well as 300 million users of older iPhones that have yet to upgrade.
Similarly, if Apple indeed makes a jump into the metaverse hardware market with a headset, the company could bring more users into its ecosystem. All this indicates that Apple's services business is built for long-term growth, which should give the company's bottom line a nice shot in the arm.
The stock is attractively valued
With so many tailwinds at its back, buying Apple stock looks like a prudent thing to do right now -- it is trading at 28 times trailing earnings, which is lower than last year's earnings multiple of 31.6. Its price-to-sales ratio of 7.6 is also lower than 2021's average of 8.2.
Additionally, the majority of analysts covering Apple stock have raised their earnings target over the past month. The company's earnings are expected to increase at an annual rate of 15% for the next five years, though it wouldn't be surprising to see it clock a faster pace of growth thanks to the catalysts it is sitting on. All this makes Apple a top tech stock to buy right now, as it offers solid growth at an attractive valuation.