Despite already rising more than 50% this year, one analyst thinks shares of Apple (AAPL 1.45%) have plenty of upside remaining over the next 12 months. More specifically, Piper Sandler analyst Harsh Kumar thinks the stock can get to $220 during this period. This price target would translate to about 12% upside for the stock, on top of an already impressive gain since Jan. 1.
Is Apple stock really a good buy today, despite its staggering first seven months of 2023? Let's look closer at why Kumar is so upbeat about Apple shares to see if he's onto something.
NASDAQ: AAPL
Key Data Points
The path to $220
In a note to investors this week, Kumar said that he is raising his 12-month price target on Apple stock from $180 to $220. Supporting his view, he believes iPhone sales in China could be notable for the tech company's fiscal third quarter, which Apple will report results for on Thursday.
In Apple's fiscal second-quarter earnings call, CEO Tim Cook noted that even though the company reported a 3% year-over-year decline in Greater China revenue during the period, sales in the market were up year-over-year on a constant-currency basis. In addition, year-over-year sales trends for the quarter improved compared to the three months ending in December 2022. With China's economy continuing its reopening following strict COVID-19 policies that disrupted Apple's sales, further improvement is possible in fiscal Q2. Regarding iPhone sales trends specifically, Cook cited third-party data that estimated iPhone models to account for four of the top-selling smartphones in urban China. So Apple is certainly well-positioned in the market.
Though given recent headlines in the media about China's recovery being slower than anticipated, some investors are worried about Apple's how Greater China sales may have fared during fiscal Q3. But Kumar seems convinced that Apple's sales in the market may prove to be more resilient than anticipated.
Going further, Kumar said that even if China sales do prove to be subpar, Apple's fast-growing sales in India could offset this weakness. To this end, Apple sales in India grew at a strong double-digit growth rate during fiscal Q2, Cook noted. "There are a lot of people coming into the middle class, and I really feel that India is at a tipping point," the CEO added.
Why Apple stock may still be a buy
While the analyst has some good points about China sales potentially being more resilient than anticipated and India serving as a timely catalyst for the iPhone maker, the bigger question is whether or not Apple stock is truly a good buy at 33 times earnings -- the premium valuation the stock is trading at today.
While it would be difficult to call Apple stock a bargain today, it's fair to say that an investor who buys the stock today has a decent chance of making out reasonably well over the long haul. The tech giant has spent decades building a powerful hardware, software, and services ecosystem and a loyal customer base. Further, with an exceptional balance sheet boasting more cash than debt, and a cash flow statement showing off annual free cash flow of around $100 billion, Apple can continue investing heavily in maintaining its attractive positioning with consumers through product innovation, new services, and constant improvement of its existing software and services. Ultimately, the company's massive scale and loyal customer base combine to give it a competitive advantage that should help the company continue growing earnings for years to come.
Even as Apple stock approaches $200, shares arguably still appear attractive. Of course, this doesn't mean shareholders won't have to endure bumpy ride with occasional large drawdowns in the stock price. Of course, despite these reasons to be bullish, investors should do their own due diligence to decide for themselves whether or not they think the stock is a buy.
