Shares of Apple (AAPL 5.98%) have pulled back over the last two weeks, falling about 6% since Feb. 15. This retreat in the stock price has been driven by broader market declines, as the S&P 500 and the Nasdaq Composite fell about 5% and 6%, respectively, during this time. Investors have been spooked by continued macroeconomic uncertainty amid interest rate hikes and inflation.
Should investors be fearful? Or is this a good time to take a closer look at quality stocks like Apple. I'd argue the latter. The iPhone maker's decline is arguably giving investors another chance to buy into the stock at an attractive valuation. Sure, there's no guessing the overall market's bottom before it reverses course. The same can be said about Apple stock specifically. But shares of the tech giant are certainly looking compelling for investors willing to buy and hold the stock for the long haul.
As investors consider whether Apple shares are a good investment today, here are two potential catalysts worth giving some weight to in an analysis of the stock.
The iPhone is winning over young people
As The Wall Street Journal (WSJ) recently pointed out, the iPhone's popularity seems to be high with Gen Z, or people in their teens and early 20s. Its popularity with this population is growing outside of the U.S. in particular. This is good news since Apple already enjoys high market share in the U.S., with iPhones accounting for an estimated 57% of smartphones shipped in the fourth quarter, according to recent research from Counterpoint.
Noting that the Gen Z population around the world increasingly sees Apple's iPhone as a "must have," WSJ author Jiyoung Sohn provides the example of the iPhone's growing market share in South Korea, the home country of Samsung, which is the company behind Apple's most formidable competitor. Citing polls by Gallup Korea, Sohn said 52% of people in South Korea between the ages of 18 and 29 were using Apple's iPhone. This is up from 44% market share in 2020.
Services should see steady growth
While Apple's iPhone is important today, accounting for more than half of the tech giant's revenue, another key segment is arguably equally vital to the tech company's future: services. The segment, which includes Apple's revenue from native apps, third-party apps, and other services, has been growing in importance to the company for years. Not only has the segment become Apple's second largest (following its iPhone segment, of course) when measured by revenue, but it's the company's highest-margin segment.
This segment's importance to Apple was particularly notable in the company's most recent quarter when services revenue increased 6% despite a year-over-year decline in product revenue. Indeed, Apple said in its fiscal Q1 earnings call that its $20.8 billion in services revenue for the period was ahead of its expectations. "We achieved double-digit revenue growth from App Store subscriptions and set all-time revenue records across a number of categories, including cloud and payment services," explained Apple CEO Tim Cook.
These two catalysts make a good case for Apple stock being a solid long-term investment, particularly with the stock trading at less than 25 times earnings at the time of this writing.
