Here’s why Apple is a good deed to buy now
After big gains for many tech stocks in 2020, many of those stocks have fallen sharply from highs reached earlier this year. This flashback, of course, may make sense for some tech stocks, as some companies’ valuations were likely ahead of themselves. But some of them – especially high-quality stocks technological actions with strong competitive advantages – can be oversold.
An example of an action that looks like a good buy after it’s sold is Apple (NASDAQ: AAPL). Don’t be fooled by its gargantuan market capitalization of $ 2.1 trillion. The shares of this dominant tech company still have room.
Apple’s latest quarterly results highlight the company’s overall strength – and why investors should have the tech stock on their radar. In the first quarter of the fiscal year (the three-month period ending December 26, 2020), Apple saw double-digit year-over-year growth rates in every product category. In addition, Apple achieved record revenue in each of its geographic segments.
In total, revenue for the period was $ 111.4 billion, up 21% year-over-year. Earnings per share jumped 35% year-over-year to $ 1.68.
Meanwhile, the company has amassed a massive active user base on its devices. During the company’s fiscal first quarter earnings call, management said it now has more than 1.65 billion active devices. “We have reached a new high threshold for our installed base of active devices, with growth accelerating,” said management.
The monetization of this lucrative user base can be seen in Apple’s services segment, which generated $ 53.8 billion in revenue in fiscal 2020, up 16% year-on-year. the other. Above all, this segment has an impressive gross profit margin of 68%.
Apple stock is worth its premium valuation
Of course, with many tech stocks down in recent weeks from levels seen earlier this year, some investors may be nervous about taking a stake in Apple. They might be wondering if this is just another overrated tech title. After all, the company’s price-to-earnings ratio of 34 doesn’t quite look like a bargain.
However, Apple has strong competitive advantages, which allows it to continue to grow its active installed base in the years to come. After years of providing quality hardware, software and services to its customers, the company has built strong branding power and gained customer loyalty. This, in turn, has led to impressive pricing power. The company’s iPhone, iPad, Macs, and AirPods, for example, all sell for prices well above the average prices of smartphones, tablets, computers, and headsets from many of its competitors.
In addition, Apple has shown no signs of losing its pricing power. Indeed, the prices of its most expensive iPhones have been increasing steadily in recent years. For example, the company recently released a pair of headphones at $ 549 – and demand has exceeded supply.
With stocks down 15% from an all-time high earlier this year, now is the time for investors to consider taking a stake in this leading tech stock. While volatility is to be expected, Apple’s recent strong business performance and undeniable pricing power suggests that the tech giant and its shareholders will have stronger business performance over the next 10. years.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.