Apple Stock Is Outperforming in a Down Market. Is It Time to Buy?

Apple (AAPL -3.73%) needs little introduction. With a market valuation of $2.4 trillion, it’s the largest publicly traded company in America — even after factoring in a 16% decline in its stock price year-to-date. 

Apple didn’t build its business in a single year. It’s a story that investors should observe over the long term because, since it was listed on the stock exchange in 1982, it has generated a return of more than 117,600%. In other words, an investment of just $10,000 back then would be worth more than $11.76 million today — assuming you held on the entire time. 

Last week, the multinational tech giant released its full-year financial results for its fiscal 2022, which ended Sept. 24. The results beat Wall Street expectations on revenue and earnings per share, but they also reflected some weaknesses in a few different areas.

The stock price jumped initially after the release but has settled back a bit since then. Should long-term investors follow the lead of short-term traders and take this as an opportunity to buy Apple stock ahead of further long-term growth? 

Looking back on a tough year

Despite the upbeat report, Apple is coming off a difficult year, although it’s certainly not alone. High inflation, supply chain issues, and rising interest rates have stung several sectors of the economy. Companies that rely on consumer spending were hit hard as household finances tightened, and Apple’s big-ticket devices — like its flagship iPhones — fit into categories of goods seeing cutbacks. 

In its fiscal 2022, Apple’s revenue increased by just 7.8%, well below the prior year’s 33.2% growth rate. Of course, the economy was running hot in 2021 as the Federal Reserve kept interest rates artificially low and the U.S. government deployed stimulus dollars in an effort to blunt the economic impacts of the ongoing pandemic. The economic environment in 2022 is very different.

Apple did release a swath of new products in September that should give its sales a lift in the upcoming holiday season. Its new iPhone 14 appears to be having an impact already: Apple’s smartphone revenue jumped 9.6% in its fiscal fourth quarter, which was a healthy improvement from the 2.7% increase in fiscal Q3.

Similarly, after a year-over-year decline in Q3, sales of Mac computers and notebooks jumped by 25% in Q4 to a quarterly record $11.5 billion. Wearables revenue jumped by 9.8%, driven by demand for the new Apple Watch Ultra and the second-generation AirPods Pro.

Apple’s services segment remains key

Apple began to report the financials for its services segment separately in 2017, and since then, investors have paid close attention to those figures because of that segment’s strong growth and much higher gross profit margins. 

The services segment at Apple includes just about anything it offers via a subscription, from iCloud to Apple Music to Apple TV+. At the close of Q4, investors are wondering if consumers are starting to tire of subscriptions. It’s a question being asked more after streaming giant Netflix‘s subscriber base shrank during the first two quarters of 2022.

Price hikes were one driver of Netflix’s decline, and Apple recently increased the price of its popular Apple Music subscription, for example. The latest report didn’t have the answer so we’ll have to wait and see whether the recent hike has a negative impact. Relentless competition is another issue: Consumers are spoiled for choice when it comes to streaming platforms in general, and for many people, it’s becoming harder to justify the expense of continuing to subscribe to all the ones they’d like, especially in this economy.

That combination of factors could explain why Apple’s services segment revenue grew in fiscal 2022 at its slowest pace since the company began reporting it. It could also just be that the pandemic pulled forward a lot of subscription growth into 2021 and 2022 is just feeling the hangover effects from the outsized growth a year earlier. This is one metric to keep an eye on next year.  

Even with the slowdown, Apple still set a record for services revenue in the fourth quarter on the back of 900 million paid subscriptions across its ecosystem.

Apple has also broken new ground this year in the segment. It expanded its Apple Pay product by introducing Apple Pay Later, its own take on the “buy now, pay later” (BNPL) installment-based lending services that have grown popular recently, particularly among younger shoppers. This could pull market share from credit card providers, and since Apple has an installed base of nearly 2 billion active iPhones, its uptake could be much swifter than its BNPL competitors.

Why Apple stock might be a buy right now

Yes, Apple’s growth slowed during fiscal 2022. And yes, economic weakness may persist for a while longer. Apple CEO Tim Cook highlighted those issues in the company’s earnings call, along with the geopolitical tensions in Europe and climate change, as areas for concern. 

But these challenges are not unfamiliar. Apple navigated recessions in the 1980s and the 1990s, not to mention the tech wreck in the early 2000s, which was followed by the Great Recession of 2007-09. It weathered them all and went on to become the most valuable company in America.

Consumers now have a record-high number of active iPhones and a record-high number of Apple subscriptions. For shareholders, Apple generated a record-high $99.8 billion in net income (or $6.11 per share) during fiscal 2022, and it returned a record-high $89 billion to shareholders through stock repurchases plus almost $15 billion in dividend payments.

The company is a cash-generating machine, and despite its short-term challenges, it’s set up to continue its run of long-term success. With Apple stock trading down 16% year to date, this might be an opportune time to buy, especially for those who have at least a five-to-10-year investment horizon. 

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