Institutional owners or smart money own nearly 59.9% of Apple Inc. (AAPL) shares. While approximately 1,800 institutions increased their positions recently, 147 new institutions opened positions in the stock. However, would it be wise to invest in the stock now? Let’s look at its fundamentals to get an idea.
AAPL’s latest quarterly results revealed some hardware struggles, as its product sales declined 4.4% year-over-year to $60.58 billion. However, offsetting the hardware softness beat, the company beat Street’s expectations for earnings and sales, driven by stronger services sales that grew 8.3% annually.
The business is highly profitable and essential for investors because it signals how the company monetizes its active base of 2 billion devices by selling them subscriptions, streaming TV, warranties, advertising, payment services, and other products included in the category. The gross margin for services in the June quarter was 70.5%, nearly double the 35.4% margin for APPL’s hardware products.
Moreover, the company declared a dividend of $0.24 per share of its common stock, payable to its shareholders on August 17, 2023.
The tech giant also gained traction with the news of strategic partnerships with renowned companies. On August 1, the company, together with Pixar, Adobe Inc. (ADBE), Autodesk, Inc. (ADSK), NVIDIA Corporation (NVDA), and the Joint Development Foundation (JDF), announced the Alliance for OpenUSD (AOUSD) to promote the standardization, development, evolution, and growth of Pixar’s Universal Scene Description technology.
By promoting greater 3D tools and data interoperability, the alliance will enable developers and content creators to describe, compose, and simulate large-scale 3D projects and build an ever-widening range of 3D-enabled products and services.
On June 5, AAPL unveiled Apple Vision Pro™, a revolutionary spatial computer that seamlessly blends digital content with the physical world while allowing users to stay present and connected to others. The device features an ultra-high-resolution display system, the efficiency of which should help attract a robust demand from new and existing customers.
Shares of the dominant tech player have gained 37.6% year-to-date. Moreover, the stock has gained 28.7% over the past nine months and 15.6% over the past six months to close the last trading session at $178.85.
Here’s what could influence AAPL’s performance in the upcoming months:
Mixed Financials
For the third quarter of fiscal 2023, which ended July 1, 2023, AAPL’s total net sales and operating income decreased marginally year-over-year to $81.79 billion and $22.99 billion, respectively. However, its gross margin rose 1.5% from the year-ago value to $36.41 billion.
AAPL’s net income and EPS amounted to $19.88 billion and $1.26, representing increases of 2.3% and 5%, respectively, from the prior year’s quarter. Also, the company’s cash and cash equivalents came in at $28.41 billion, up 20.1% versus $23.65 billion as of September 24, 2022.
High Profitability
AAPL’s trailing-12-month net income margin of 24.68% is significantly higher than the 2.01% industry average. Likewise, its trailing-12-month EBITDA margin of 32.29% is 265.8% higher than the 8.83% industry average. Also, the stock’s trailing-12-month asset turnover ratio of 1.14x is 85.6% higher than the industry average of 0.62x.
Furthermore, the stock’s trailing-12-month ROCE and ROTC of 160.09% and 40.39% are considerably higher than the industry averages of 0.50% and 2.13%, respectively.
Stretched Valuation
In terms of forward EV/Sales, AAPL is trading at 7.28x, 152.8% higher than the industry average of 2.88x. The stock’s forward EV/EBITDA and EV/EBIT, multiples of 22.27 and 24.68, are 47.4% and 32.8% higher than the industry averages of 15.11x and 18.57x, respectively.
In addition, AAPL’s forward Price/Sales of 7.43x is 164.2% higher than the industry average of 2.81x. Likewise, its forward Price/Book multiple of 47.65 compares to the industry average of 4.37.
Mixed Analyst Estimates
Analysts expect AAPL’s EPS for the fourth quarter (ending September 2023) to come in at $1.39, indicating an increase of 7.8% year-over-year. However, the consensus revenue estimate of $89.31 billion represents a marginal decline from last year’s period. Moreover, the company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Furthermore, its EPS and revenue for the fiscal year 2024 are projected to grow 8.5% and 6.2% from the prior year period to $6.57 and $406.85 billion, respectively.
POWR Ratings Reflect Uncertainty
AAPL’s POWR Ratings reflect this prospect. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has an A grade for Quality, in sync with its higher-than-industry profitability, and a C for Sentiment, consistent with its mixed analyst estimates.
In addition, the stock also has a C grade for Growth, in sync with its mixed financial performance in the last reported quarter. On the other hand, AAPL is rated D for Value, justified by its stretched valuation.
The stock is ranked #22 out of 43 stocks in the Technology – Hardware industry. Click here to see additional ratings for AAPL (Momentum and Stability).
Bottom Line
Although AAPL is an indisputable market leader in the tech landscape, driven by strong demand for its innovative product line and several strategic partnerships, the tech industry’s near-term growth prospects are in question as the Federal Reserve leaves the possibility of another hike on the table despite easing inflation.
While it makes sense for institutions to continue focusing on AAPL, given its stretched valuation and mixed analyst estimates, it could be wise to wait for a better entry point in the stock.
How Does Apple Inc. (AAPL) Stack Up Against Its Peers?
While AAPL has an overall POWR Ratings grade of C, equating to Neutral, one could also check out other stocks within the Technology – Hardware industry that are overall A (Strong Buy) rated: Panasonic Holdings Corporation (PCRFY), TransAct Technologies Incorporated (TACT), and Spirent Communications plc (SPMYY).
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AAPL shares were trading at $179.14 per share on Tuesday afternoon, up $0.29 (+0.16%). Year-to-date, AAPL has gained 38.28%, versus a 17.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
