The stock market has been dragged down over the past year, with the Russell 3000 dropping by 10%. But growth stocks, losing 16%, have fared worse than the broad market. That's because many traded at higher valuations than their value counterparts and were more susceptible to higher interest rates and market downturns.
Apple (AAPL -0.18%) has seen its share price fall by 15% during this time. But that shouldn't scare off investors. The company still has a lot going for it, and there are several reasons you should consider this a buying opportunity.
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Loyal customers
Apple's customers remain very loyal to the brand. Getting customers to keep coming back remains encouraging. After all, what's a better testament for a company?
In October 2021, research group CIRP showed that more than 90% of iPhone users purchased the same brand when buying a new smartphone over the previous 12 months. It was also at this level for the prior two years. That compares favorably to rivals such as Samsung Electronics (SSU -3.37%), with less than 70%.
Apple's iPhone continues to take market share from rival smartphone makers. In the U.S., it now accounts for more than 50% of smartphones used.
While the company certainly has other products, iPhones account for a large portion of Apple's sales. In its latest fiscal year, which ended on Sept. 24, 2022, iPhones were 52% of the company's top line.
A good lineup
Apple released a new iPhone version in September. Although it was only sold for less than a month, fourth-quarter sales of the devices increased by 9.7% to $42.7 billion.
Management has also been taking steps to increase the iPhone's profitability. This includes moving away from relying on costly third-party providers and producing more parts internally.
While iPhones represent the biggest slice of the sales pie, Apple has other growth areas. This includes services, such as advertising, technical support, and the App Store. As the second biggest source of sales, it grew by 5% in the latest quarter to $19.2 billion. While sales growth slowed from earlier in the year, management blamed it on temporary factors such as foreign currency exchange translations. On a constant currency basis, it said sales rose by double digits.
Returning cash
The business produces a healthy amount of free cash flow (FCF). Last year's FCF was $110.4 billion. Management has been returning a lot of it to shareholders, primarily via repurchases. In the latest year, it spent $89.4 billion on buying back shares.
The company also spent $14.8 billion on dividends. While the 0.7% dividend yield trails the S&P 500's 1.7%, Apple has raised the dividend payment annually since 2012. That includes last April, when it increased the quarterly payout by 5% to $0.23.
It's encouraging when a company can continue investing in new products, grow sales and profit, and return cash to shareholders. Plus, the stock's valuation has become more compelling. The trailing price-to-earnings ratio (P/E) has dropped to 23. By way of contrast, the P/E was over 40 at the start of 2021 and more than 30 a year ago.
A company like Apple won't sell at this valuation for long. That adds up to a compelling opportunity for this growth stock.
