Shares of Silicon Valley giant Apple (NASDAQ:AAPL) closed in on a fresh all-time high this week that reminded Wall Street and Main Street alike of their potency. They’ve been trending upwards since the start of June and have tacked on almost 20% in the month since, with plenty of signs suggesting they’re only just starting to stretch their legs out again.
The tech market as a whole, seen through the NASDAQ index, is starting to push ahead of the other sectors after a sluggish start to the year, with Apple playing a large role in its ascendancy. For investors who were starting to grow wary of tech with the growing concerns around rising inflation in recent months, this run should put those worries to bed for the time being.
50% Revenue Growth
From a fundamental standpoint, Apple is still the money printing machine it's come to be known as. Their most recent earnings report had revenue up more than 50% on the year, which, in tandem with the EPS print, smashed analyst expectations. Tim Cook’s company has made a nice habit of consistently outperforming the already high standards set for them. For example, revenue from the Mac suite came in at $9.1 billion for the quarter versus the $6.9 billion that had been expected, a not insignificant beat that’s perhaps more becoming of a hot shot tech start-up rather than a $2.4 trillion beast.
That same earnings report also saw management hike the company’s dividend and boost their existing share repurchase program by a further $90 billion. There are few clearer and more positive signs that management can give to investors than a dividend hike and a share buyback strategy. The former tells us that they see their future revenue and profit trajectory justifying the higher payout, the latter tells us that they think their shares are undervalued at current prices. Small wonder then that we’ve had an uptick in shares in the weeks since.
That’s not to say that there are no bears, however. Last month, Bank of America warned that Apple was going to start coming up against increasingly difficult comparables in its categories towards the end of the year. In particular, they see the company’s online App Store struggling the most and with overall sales growth for this coming quarter already overly optimistic.
These echoed similar bearish sentiments shared by New Street Research who went so far as to downgrade their rating on Apple shares in late May. They moved them from Neutral to Sell whilst also paring their price target back to $90, a move that’s looking more wrong every day at the minute. At the time, the team pointed out that "the key question is how things shape up for next year, as the current super-cycle has brought forward demand, the next iPhone line up is likely a '12S' type with limited innovation, and consumers spend less on consumer electronics as the economy reopens." But it has to be said their worries are shared by few if any others.
Getting Involved
Oppenheimer and Wedbush have both reiterated their Outperform rating on shares in recent weeks, with the latter also boosting their price target to a street high of $185. This suggests there’s upside to be had in the region of 30%, and speaks loudly to their confidence in Apple continuing to print fresh highs for the rest of the quarter at the very least.
For any of us on the sidelines considering a new position or thinking about adding to an existing one, there’s not a lot to dislike about Apple right now. Their price-to-earnings ratio of 32 hardly puts them in the overvalued category compared to some of their Silicon Valley peers, while year on year revenue growth 50%, for a $2 trillion company in particular, has a nice ring to it. The stock’s relative strength index (RSI) is starting to rise above 80 which might suggest that it’s getting a little hot in the immediate term, but if any company can justify that kind of a print, it’s Apple.
