Apple (NASDAQ: AAPL) stock has been a fantastic investment over the long term. However, in recent months, it has experienced a significant pullback.
Is this a great buying opportunity for long-term investors? Or are Apple shares a risky bet from here? Let’s take a look.
Right now, Apple is facing a few challenges. For starters, it has supply chain issues. Apple relies on manufacturing giant Foxconn to produce a large proportion of its iPhones. And recently, Foxconn’s main manufacturing hub in China hasn’t been operating at full capacity due to Covid restrictions in the country.
This is impacting Apple’s sales. Research firm TrendForce believes iPhone sales for the first quarter of 2023 will decline 22% year on year as a result of supply chain issues.
Secondly, consumers have less disposable income due to inflation. Now this may not impact iPhone demand too much because smartphones are pretty much essential these days (and few people want to switch brands).
However, it could impact demand for other Apple products such as AirPods and Watches. It’s worth noting that a report in the Nikkei recently claimed that Apple has told its suppliers to manufacture fewer parts for its headphones, watches, and laptops.
Looking at the share price and valuation though, I’d argue that a lot of the above is already priced into the stock. Currently, Apple stock is around 30% off its highs. That’s a decent pullback.
Meanwhile, the forward-looking price-to-earnings (P/E) ratio here is only around 21 at present.
I see that as a relatively low multiple, given a host of company positives:
- Brand power: Apple is the most valuable brand in the world, according to Kantar BrandZ
- Ecosystem: The company’s ecosystem (where all its products connect with each other) provides a huge competitive advantage. It’s one of the reasons Warren Buffett has invested billions in the stock
- Level of profitability: Apple generates a very high return on capital (three-year average of 46%)
- Financial strength: The tech giant is buying back a ton of its own stock at the moment. This should boost earnings per share over time
- Long-term growth potential: Apple is moving into a number of high-growth markets including payments and healthcare. I suspect that in a decade’s time, it could be a major player in the healthcare space, thanks to its wearables
Given the valuation, my view is that it’s a good time for investors to take a closer look at the stock.
Of course, there’s always the chance Apple’s share price could keep falling in the short term. If sentiment towards tech stocks remains weak, it could easily fall another 10% or 20% from here.
However, in the long run, I expect Apple stock to climb much higher. So I reckon having a nibble now, while it’s around 30% off its highs, is a good idea. That’s what I plan to do.
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Edward Sheldon has positions in Apple. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.