Is Apple Stock Still A Good Buy?

On August 19, 2020, the company Steve Jobs started in his garage became the first US business to reach a market cap of $2 trillion. Just one other company in the world has ever hit this number – the massive Saudi Arabian Oil Company known as Saudi Aramco. 

This achievement has not gone unnoticed in the investing community. When coupled with Apple’s recent stock split, many who don’t yet have a position in Apple believe this is the right time to get on board – but is Apple stock still a good buy? Is it possible for such a company to keep up its current rate of growth indefinitely? 

Apple Stock History

As the fourth quarter approaches, most investors and business leaders are breathing a sigh of relief. The vast majority had more than a few sleepless nights after the shocking market lows in March 2020.

However, Apple and its investors haven’t had quite as much trouble surviving the economic turmoil. While entire industries crashed, Apple gained 82 percent year-to-date. 

It’s true that Apple hasn’t always been a winner. Some might remember that founder Steve Jobs was forced out in 1985, and the company struggled mightily until his return in 1997.

In fact, things were so bad that when Jobs was appointed CEO in 1997, Michael Dell of Dell Computers suggested the best thing Jobs could do for his shareholders would be to shut the company down and return their money. As things turned out, Dell couldn’t have been more wrong. 

The iMac was introduced in 1998, the iPod in 2001, and the iPhone in 2007. Thanks to the success of these products, stock prices have increased steadily – and steeply – quarter after quarter.

Including its August 2020 split, Apple has now split five times since its 1980 IPO. There was a two-for-one split in June 1987, a two-for-one split in June 2000, a two-for-one split in February 2005, and a seven-for-one split in June 2014.

It’s interesting to note that if the stock had never split, a single share would be priced at approximately $28,000 today. 

Apple Stock Split 4:1

When Apple closed on Friday, August 28th, each share was valued at just under $500. When it opened on Monday, August 31st, shares traded at a little more than $127 each.

The four-for-one stock split instantly made Apple more affordable, and analysts are scrambling to determine how this development will impact Apple stock long-term. 

In the short-term, news of the stock split has prompted an increase in per-share prices. In the weeks leading up to the transaction, Apple shares rose in value, and that has continued to be the trend in the days immediately following.

However, this increase isn’t especially logical, which leads many analysts to believe that these gains could be lost in coming months. After all, the split doesn’t mean current investors have a bigger stake in the company – only that their existing stake has been divided into more pieces. 

In other words, while investors have shown their enthusiasm for the split by driving up share prices, the stock split doesn’t deliver any particular financial benefits.

However, the underlying factors that have created the United States’ first $2 trillion company are still relevant, and the evidence indicates that Apple will continue to be a winner regardless of the split. 

Apple Market Cap Is High

Though iPhones are critically important to Apple’s profits, the company didn’t earn its impressive valuation based on a single product. It has pioneered a wide variety of first-in-class and best-in-class technology solutions that gained widespread popularity for their simplicity and user-friendly interfaces. 

In 1976, Steve Jobs and Steve Wozniak wanted to change how people viewed and interacted with computers. Their goal was to create machines small enough and affordable enough to become a part of every home and office. F

rom the Apple I and Apple II to iMacs, iPods, and iPhones, Apple has been on the cutting edge of new technologies. More importantly, it has made it possible for average people to benefit from those powerful tools. 

The iMacs and iPhones are critical to Apple’s bottom-line results, but most analysts believe that peripheral ventures gave the company an extra boost to hit the $2 trillion mark.

Examples include wearable technology like the Apple Watch, along with experiments in entertainment such as Apple TV, smart home devices through HomePod, and even electric, autonomous vehicles. As each new project achieves success, the Apple brand – and business – becomes more valuable. 

Some analysts believe Apple could reach an astonishing $3 trillion market cap by 2023, if 5G-enabled iPhone sales do as well as predicted. If so, those who buy today will be rewarded handsomely within a short span of time. 

However, famed valuation professor Aswath Damodran believes Apple share prices at current levels are overvalued so it begs the question whether Apple stock is still worth investing in. After all, if the valuation guru Professor Damodaran claims the share price is above its intrinsic value, why buy now?

Is Apple Stock Still a Good Buy?

The bottom line is that Apple is still a good buy on a pullback, and some investors may wish to wait a bit and see if the split-related bump in price is here to stay.

Apple remains a leader in innovative solutions for complex problems, including smart home devices and wearables. More importantly, the transition to 5G technology promises strong sales for the iPhone, which have lagged in recent years. 

When all of that is added to the fact that virtual work has sharply increased and may be here to stay, most agree that the factors that have driven Apple to dizzying heights are still present. That means profits will continue to rise, benefiting shareholders. 

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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.