Blink, and one would have missed it.
On Friday, April 9, Apple stock finished the trading session valued at $133 apiece. The milestone was reached only one month after shares were worth about $116. Since then, Apple has risen an impressive 14% – the fastest climb of this magnitude so far in 2021.
As the stock now stands only 7% below the late January all-time high, Apple investors must be asking: is now too late to buy shares of the Cupertino company?
Fundamentals vs. valuation
Few have tried to make (and none have been proven right on) a convincing bearish argument on Apple shares. Goldman Sachs’ Rod Hall is perhaps the most notorious Wall Street professional to hold overwhelmingly negative views on the Cupertino company’s business and stock.
But generally, consensus suggests that Apple and its shares should do just fine over time. Among the most bullish fundamentals arguments used to justify owning a piece of the company’s equity are:
- The early stages of the 5G refresh cycle that could breathe life into an otherwise mature product category: smartphones
- Greenfield opportunities in autonomous vehicle (i.e. the Apple Car) that could produce a fresh inflow of sales and earnings where none currently exists
- The potential doubling of service and wearables revenues within the next five years, possibly aided by the introduction of a mixed reality device
- Large quantities of cash that should continue to finance investments in growth, payment of dividends and share repurchases
The problem, of course, is that valuations are no longer as attractive as they were as recently as early March. In fact, the price-earnings and price-free cash flow ratios have returned to January 1 levels.
Only briefly this year, in February, have both metrics been any higher than where they are now. Last year, the multiples were only above current levels a couple of times, in September and December. In all cases, Apple stock corrected not much long thereafter. See chart below.
The Apple Maven’s take
TheStreet’s and CNBC’s Jim Cramer himself has consistently argued that Apple is a stock to own, not one to trade. I agree with his take. I do not believe that Apple shares at $116, $133 or $144 should make too much of a difference in an investor’s decision to buy Apple stock today and hold it for, say, 10 years.
Here are some numbers around the logic. Suppose that Apple shares climb to $500 by the end of 2030 – not a far-fetched idea. Buying shares at today’s price of $133 or last month’s low of $116 changes the annualized return by only 150 basis points. The biggest risk, in a bullish scenario, is not in failing to secure the best price, but in not investing as soon as possible and passing up on future returns.
Having said this, I accept the argument that buying Apple around the April 28 earnings day could get a little tricky, and that the short-term risks of doing so have increased a bit after the recent rally.
What is your opinion? Has Apple stock rallied too quickly, or is there still a good opportunity at a drawdown from the peak of 7%? Leave your answer below.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)