Over the past few months, Apple has seen its share price decline from the all time high of $182 in Jan to $138.80 on 12th May. The dip has been largely attributed to macroeconomic factors such as soaring high inflation, supply chain disruptions, as well as fears induced by the broader market sell off. Given these challenging situations and headwinds, is Apple stock still worth investing in?
To answer these questions, I decided to look back at the 7 steps that I learnt about value momentum investing
- Does the business have consistently increasing sales, net income and cash flow from operations
- Positive Growth Rate
- Sustainable Economic Moat/ Competitive Advantage
- Consistently high return on equity
- Conservative debt
- Is the price below/near intrinsic value?
- Is it a great point of entry?
Consistently increasing sales, net income and cash flow from operations [Strong]
Looking at the following charts extracted from GuruFocus, Apple certainly does meet the criteria of having increasing sales, net income and cash flow from operations.
Positive Growth Rate [Strong]
The following are some projected growth rates of Apple taken from analysts from different sources. On average, the growth rate is approximately 10%.
- 6.69% (FinViz)
- 12.50% (Zacks)
- 9.06% (GuruFocus)
Sustainable Economic Moat / Competitive Advantage [Strong]
Apple is able to differentiate itself from the other competitors in the consumer electronics industries through its branding and innovative products and services, thus allowing them to charge premium prices to its customers and earn a higher profit margin.
Consistently high return on equity (ROE) of 12 to 15% [Strong]
For the last 5 years, the Return On Invested Capital for Apple is consistently above the 12 to 15 % range.
Conservative Debt [OK]
The current ratio (Current assets / Current Liabilities) is a liquidity ratio that measures a company's ability to pay short-term obligations. Ideally, it should be greater than one.
Apple has a current ratio of 0.93 as of Mar 22 :(
Debt-to-EBITDA (Short Term Debt + Long Term debt / EBITA) measures a company's ability to pay off its debt. Ideally, it should be less than 3. A high Debt-to-EBITDA ratio generally means that a company may spend more time to paying off its debt
Apple has a debt to ebita ratio of 0.89 as of Mar 22
Price is near or below its fair value [OK]
When the share price is below its stock's intrinsic value, there is a margin of safety. Currently, the fair value estimation provided by Morning Star is $130. Thus, the current stock price $147 (As of 13 May) is approximately 13% over its intrinsic value. However, other sources e.g. Simply Wall Street put Apple fair value at $164.97, and the current price is 10.8% undervalued. Thus, I would put the fair value of Apple to be between $130 and $164.
Is it a great point of entry?
Typically, I would buy when price is at the dip of an uptrend, and is near critical support level and moving averages. I will split my purchases of the stocks in 3 to 4 tranches rather than going all in at one time.
Looking at the daily charts, I see strong support at $144.40. Thus, it could be a potential buy point for my first tranche in Apple stock. :)
Looking at the weekly chart, I see strong support on the 100 and 200 MA. Thus, my potential buy points are around $136.51 (second tranche) and another buy point at $109.08 (third, tranche should price dip lower)
That is all for my sharing today. I hope everyone continues to stay safe and trade safely, especially in these volatile times. Would gladly appreciate your help to like and share the posts if you find it helpful to you or your fellow friends. [Happy] [Happy]
Do leave any comments and suggestions regarding the sharing, and on any stocks I should review next.
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