JMarkets are having a rough year so far, with the S&P 500 down about 13% year-to-date amid the ongoing Russia-Ukraine war, surging inflation and crude oil prices and expectations of monetary policy tightening, all of which are likely to have an impact on economic growth. Tech stocks have fared even worse as investors turn to value and cyclical bets, with the Nasdaq-100 down nearly 20% year-to-date. Now even Apple Inc (NASDAQ:AAPL) stock, which is seen as something of a safe haven, hasn’t really been immune to the selloff, down about 13% since the start of the month. ‘year. However, we think Apple still looks compelling in the current situation, with our price estimate of $174 for the stock about 10% above the current market price. There are several reasons for our bullish stance on Apple.
First, Apple’s finances are expected to continue at record highs this year, despite economic headwinds. Although we expect growth rates to slow in FY22 as demand for the remote work and learning trend cools and iPhone 13 likely sees growth slower compared to the iPhone 12, we still expect that Apple revenue will grow about 10% in FY22. The main drivers of growth are likely to be Apple’s services business, which is seeing strong app sales and a growing number of paid subscriptions on its platform. fitness (about 785 million in December, up 165 million from last year). Apple is also likely to handle supply issues much better than rivals in consumer electronics, given its size and thick margins, which could put it in a better position to secure the market. supply in times of uncertainty. For perspective, in the first quarter of FY22, when much of the consumer electronics industry was reeling from semiconductor issues, Apple actually increased its gross margins at 43.8%, near historical highs, thanks to a more favorable product mix, higher service sales. , and rising volumes.
While continued revenue growth and solid margin expansion should boost Apple’s earnings, shareholder returns could be boosted by Apple’s massive share buyback program. Apple has repurchased on average about 5% of its shares each year for the past five years. Apple’s valuation also looks reasonable, compared to historical levels. The stock is trading at a P/E of just over 25x currently, roughly in line with the Nasdaq-100 and down from around 31x in 2021 and 38x in 2020. action a compelling choice in today’s market. See our analysis on Apple valuation: Are AAPL shares expensive or cheap? for a look at what drives our price estimate for Apple.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.