Apple (AAPL 0.32%) is one of the best-known companies in the world, and has made plenty of shareholders wealthier over the past several decades. Its demonstrated ability to repeatedly create innovative tech products and services keeps it top of mind with a broad swath of consumers.
But for long-term investors, is Apple's stock still a buy right now?
Image source: Getty Images.
Services and iPhone driving success for Apple
Apple has delivered robust growth despite its massive size. In the past decade, its revenue increased at a compound annual rate of 12.9%. That has translated into sales rising from $156 billion in 2012 to $366 billion in 2021. The iPhone has fueled Apple's success over that time. Now in its 13th generation, the popular smartphone is in the pockets of roughly 1 billion people worldwide.
Perhaps equally as important, Apple is progressively expanding its services business. That segment includes its Apple Music and Apple TV+ streaming services, which have grown to over 825 million paid subscriptions worldwide, and rose by 165 million in the last year. In its most recently completed quarter, which ended March 26, revenues from Apple's services segment totaled $19.8 billion. The company's overall revenue was $97 billion during that period.
The services segment is vital because it generates higher profit margins than the product segment. In its most recent quarter, the gross profit margin for the product segment was 36.4%, while for the services segment, it was 72.6%. Growing the services business has helped Apple boost its operating income from $55 billion in 2012 to $109 billion in 2021.
AAPL Operating Income (Annual) data by YCharts
That said, Apple's business is not without challenges. Supply chain disruptions are impairing its ability to capitalize on consumer demand. Management forecasts it will miss out on $4 billion to $8 billion in sales in its current fiscal quarter because it will not be able to meet its full customer demand. There is no telling how long these headwinds will persist as the long-term effects of the pandemic and other macro factors continue to reverberate across the global economy.
Is Apple's stock too expensive?
AAPL Price to Free Cash Flow data by YCharts
Apple is trading at a price-to-free-cash-flow ratio of 25.9 and a price-to-earnings ratio of 26.1. By those metrics, the stock is not cheap -- but it's not expensive either. Considering that over the last decade, Apple has transitioned more of its business to recurring revenue sales that produce higher margins, one can argue it justifies a higher price multiple.
Moreover, when measured against one of its main competitors, Microsoft, Apple is trading at a discount based on those same metrics.
The verdict
Whether or not to buy Apple stock at current levels is not an easy decision. The shares are not cheap, and the business faces headwinds from supply chain shortages and rising input costs. Since the pandemic's onset, consumer demand has been incredible, but it could slow as higher inflation bites into people's discretionary income.
However, Apple's repeatedly created innovative products that generated billions of dollars in annual sales. That capability could lead to robust investor returns over the next five to 10 years. So if you're a long-term investor, Apple stock could be right for you.
