Is Apple Stock Cheap Now?

The latest earnings for the Magnificent Seven stocks have been intensely scrutinized to gauge just how big the impact of artificial intelligence will be on technology going forward.

Meta share price fell precipitously after CEO Mark Zuckerberg’ earnings report failed to measure up to investors’ high hopes. Similarly, Microsoft beat both revenue and earnings estimates, yet still saw its stock sell off a bit.

Apple (NASDAQ: AAPL) is unique among its big-tech peers because it hasn’t made any splashy AI innovations that have captured the attention of investors. While Nvidia has returned almost 200% over the past year, Apple returned just 0.44%.

There is more to the story than just the AI deficit for the world’s second-largest company. Sluggish iPhone sales in China have taken their toll on revenues. The company’s newest product, the $3,500 Vision Pro, has been met with mixed reviews and slower than expected sales.

Apple is still one of the most iconic brands in the world, though, with a legion of devoted followers and the company’s ecosystem, though sometimes criticized as overly stringent, has produced an economic moat that few other brands can even imagine. It’s a primary reason why Apple has been a staple of billionaire Warren Buffett’s portfolio for years.

So is Apple stock cheap right now?

Why Did Apple Share Price Slide?

Since Apple reported its earnings for 1st quarter of fiscal year 2024 earnings in February, AAPL share price has fallen by just over 5%. The main concern at the time was the slump in Chinese iPhone sales, which dropped 13% in the quarter.

Despite a disappointing performance in a sluggish Chinese economy, iPhone sales beat forecasts, producing revenues of $69.7 billion versus the forecasted $67.82 billion. Total revenue of $119.6 billion also outperformed expectations by 1.11%.

The company beat on net income as well with $33.9 billion in profit, a 13% improvement year-over-year. Diluted earnings per share equated to $2.18, which exceeded the EPS forecast of $2.10 by 3.7%.

The number of devices Apple had in use jumped from 2 billion in 2022 to 2.2 billion by the close of 2023. However, the company’s services revenue for the first quarter was 1% less than experts expected.

Will Apple Stock Go Back Up?

Were it not for the decrease in iPhone sales in China, the quarter might have been viewed as a success.

Unfortunately, there was no big product news to garner attention. Investors had been holding out hope that the company will throw its hat into the AI ring that has been dominated by Microsoft and Nvidia, but so far that hasn’t materialized in any meaningful way.

Apple CEO Tim Cook raised eyebrows when he dropped hints that the company could enter the AI market by mid-2024. But so far, investors have yet to see the “enormous progress” that Apple has made in integrating AI into its offerings.

It’s not hard to envision an AI-powered Siri that will compete with Microsoft’s Copilot virtual assistant. The problem is that Copilot is much further along, having recently been launched on a large-scale basis. Still, given the strength of the Apple ecosystem, any AI news will likely have an impact on the stock.

The company’s ecosystem has also come under fire of late. Apple has been under investigation in the European Union (EU) because of its tight grip on its ecosystem. The EU fined the company $2 billion after Spotify alleged Apple kept them from running promotions that took customers outside of the Apple ecosystem.

Apple did just secure a massive win in another EU case that could have cost them up to 10% of annual turnover. Not only is Apple not expected to receive additional penalties, EU lawmakers have approved the company’s launch of its tap-and-go payments system in Europe.

What Does Wall Street Say About Apple Stock?

Wall Street analysts have begun to turn a little more bullish on AAPL. Out of 44 analysts who have weighed in on the stock, 25 rate it as a Buy. That includes 5 analysts who believe the stock is set to outperform the market at large over the next 12 months. The highest forecast has the stock jumping 46.7% to $250 per share.

14 analysts rate the stock a Hold, and the average forecast has AAPL rising 15.5% to $196.84 over the next year. There are 5 Sell ratings on the stock with two predicting Apple shares will underperform the market over the next year. The lowest forecast remarkably implies a 26.6% decline to $125 per share.

Is Apple Stock Overvalued?

Even as many of its mega-cap peers have seen their valuations explode, Apple has largely plateaued.

Nvidia has a price-to-earnings ratio of 72.4x while Amazon’s P/E is above 60. While neither of those values have stopped investors from buying in, it is somewhat concerning to investors who worry that AI has overinflated expectations for tech stocks.

Apple has a P/E of 26.5x, which is reasonable compared to the tech industry average P/E of 30. Microsoft, which just edged out Apple to become the largest company in the world, has a P/E of 33.7x. Apple currently has a price-to-sales ratio of 6.8x, which is far above the median stock on the market but not especially elevated based on past history.

The company has also paid a dividend since 2020 that has been consistently rising. AAPL now has an annual dividend yield of 0.56%, working out to a quarterly payout of $0.24 per share.

Is Apple Stock Cheap Now?

On a multiples basis, Apple stock is not cheap now trading at 26.1x earnings and 6.8x sales. Nonetheless, the consensus target price among analysts is for AAPL share price to rise to $198 per share.

Apple has managed to sidestep the tech hype this year surrounding AI, which has proven to be a double-edged sword. The share price hasn’t entered any sort of bubble territory but equally a bust isn’t likely anytime soon either.

Investors might not care so much about the AI or cloud success of other big tech companies if Apple still had strong iPhone sales, or attractive products in the pipeline. For now, when iPhone sales struggle, Apple struggles.

Unfortunately, the Vision Pro hasn’t excited Apple’s fanbase. But the company has such a strong brand with a well-established moat that if Apple announces any upcoming product launches, it will likely affect the stock in a positive way.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.