While Street sentiment toward Apple (NASDAQ:AAPL) stock has been up and down over the past several years, the recent surge in the company's stock price is a reminder that patience pays off and fundamentals will ultimately drive a company's stock price.
Did Apple ever really lose its flavor?
Apple has staying power. Not only does the company dominate the high-end market for electronics hardware, but the retention of Apple's customers across its product lines is also second to none. Apple has built an ecosystem of software, hardware, and services that keeps customers coming back for more. All of this has led to a history of successful product launches and a robust bottom line.
Interestingly, the same thing could have been said about Apple in August 2011, when Steve Jobs resigned. Yet many headlines at the time suggested that the company was doomed without its iconic founder. The company's conservative valuation, trading at about 15 times earnings in 2011, reflected this concern.
In 2011, Apple was a stellar low-risk investment: a fast-growing, profitable business with staying power trading at a conservative valuation. Very rarely are opportunities so clear.
Of course, anyone who follows Apple stock closely knows how the story played out for the long-term investors who held the stock since then. Shares are up 58%. And even this figure understates the performance of the stock, considering Apple began paying investors a dividend in the second half of 2012. Well-received new products under Apple's new CEO, Tim Cook, have helped the company grow trailing-12-month free cash flow more 50% since Apple's founder stepped down.
Where's Apple stock headed next?
In the short term, it's hard to tell what could be next for the stock. There's talk of an iWatch, an app store for the company's set-top box, and even a full-fledged payment service. Maybe these will provide a short-term catalyst for the stock. But Foolish investors will never bet on the direction of a stock in short run. Not only can company-specific news alter Mr. Market's volatile emotions toward a particular stock, but economic news can also suppress valuations of the entire market all in one swoop (and these are only a few of the buttons that get Mr. Market excited).
Over the long haul? Chances are the stock will continue to perform well. Zooming out 10,000 feet, Apple stock is still an excellent business trading at a conservative valuation. Not only does Apple's staying power look stronger than ever, but its business is still growing. In Q2, Apple posted record revenue for the March quarter and sales of its largest and most profitable business were up 14% from the year-ago quarter. And like icing on the cake, Apple also boosted its program to return cash to shareholders through repurchases and dividends by $30 billion and said it plans to increase its dividend on an annual basis.
All this and Apple stock trades at just 14 times earnings compared to the S&P 500's price-to-earnings ratio of 17.5. A recipe for a low-risk long-term investment, right? For Foolish investors with longer time horizons, I think so.
But this simplistic 10,000-foot view of Apple won't be the major driver of the stock in the short term. The Street will grab onto headline-driven short-term nuances the same way Steve Jobs' absence served as one of the factors that suppressed the stock in 2011. But for investors in for the long haul, betting on Apple stock will likely continue to prove to be lucrative.