Should You Hold Apple (AAPL)?

Apple (AAPL) needed to prove itself in its latest earnings report.

A lack of new products and a slowdown in China hampered sales over the past year when revenues declined for the first time since 2019.

Thankfully, earnings beat expectations while Apple hyped its soon-to-be-released iPad Pro, which is thinner than an iPod nano and includes the new M4 chip and an OLED panel.

While the company assured investors things are better than they seem, we wanted to see whether this stock made sense at these price levels.

Apple’s Business

From the minds of Steve Jobs and Wozniak, Apple has grown to become a global leader in technology and innovation.

With a focus on premium, user-friendly products and services, the company has built a loyal customer base, a strong brand reputation, and an enviable ecosystem.

Apple breaks down its business into products (74% of total revenues) and services (26% of total revenues).

In recent years, management has focused on expanding the higher-margin services side of the business.

Apple is seen as a technology leader. Yet, its lack of spectacular breakthroughs in recent years has worried investors.

So, the introduction of the VisionPro and the new iPad were met with exuberance.

Importantly, Apple’s latest iPad boasts new AI features not a moment too soon as OpenAI released its latest ChatGPT bot that can listen and communicate verbally.

Financials

Source: Stock Analysis

Sales stagnated over the last year in several key categories, including:

• iPads sales down 17% YoY
• Wearable sales down 9.6% YoY
• iPhone sales down 10.5% YoY
• China sales down 8.1% YoY

Thankfully, services revenue climbed 14% YoY, helping to cover the shortfalls elsewhere.

This helped improve gross margins to 45.6% for the trailing 12-month period, while boosting all other margins as well.

With over $162 billion in cash and securities, Apple announced a massive $110 billion buyback on top of increasing its quarterly dividend by 4%.

Valuation

Source: Seeking Alpha

The latest jump in Apple’s stock has stretched its valuation quite a bit.

Shares trade at 28x earnings, which is cheaper than most other large-cap tech, but not all.

In fact, its price-to-cash flow is tied for the second highest on this list with Microsoft (MSFT).

That would be fine if Apple has the same growth prospects.

Growth

Source: Seeking Alpha

Unfortunately, Apple’s sales forecast isn’t so hot.

At forward growth of just 1.4%, it’s the lowest of all the stocks on this list.

In fact, it has the lowest growth rate in nearly every category compared to its peers.

Profitability

Source: Seeking Alpha

Although Apple runs good margins, it’s still one of the lowest on this list.

Only Amazon (AMZN) comes in lower in several categories.

However, Apple’s returns on equity, assets, and total capital are nothing to sneeze at.

Our Opinion 6/10

Apple is a great company. But we fear it’s hit a stagnation point.

The company relies more on iPhone replacement cycles and incremental growth rather than true innovation.

That could change as it expands its work into AI.

However, we see far more value in other companies like Microsoft or Meta (META).