Apple is the cheapest stock among the "Magnificent Seven"
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Guess which stock is the cheapest among the tech "Magnificent Seven"? The answer is $Apple(AAPL)$ !
Here's why Apple's stock is relatively cheaper compared to its top tech peers.
Apple's Discounted Valuation
For younger, unprofitable companies, the price-to-sales ratio might be a good indicator to assess stocks and their correlation with revenue. But for more mature, industry-leading companies, the price-to-earnings ratio is probably a better metric. So, combining P/E with P/FCF ratio gives a more accurate picture of the company's valuation.
Not long ago, $Alphabet(GOOG)$ $Alphabet(GOOGL)$ was the cheapest stock among the "Magnificent Seven". But its share price has jumped 15% in the past month, boosting its valuation. Meanwhile, Apple's stock has dipped 3% during the same period. So, now Apple boasts the lowest P/E ratio.
Since December 2023, Apple's P/E and P/FCF multiples have also been the lowest, clocking in at 25 times. But there's a reason for this discount.
Here's the rundown of Apple's issues:
Growth has stalled. The company is facing negative sales growth in China, and it hasn't found an effective way to monetize AI like most of the Big Seven have. A core reason why $Microsoft(MSFT)$ overtook Apple as the world's most valuable company is its potential to leverage AI across its businesses in the short and long term.
The lack of iPhone innovation has been a concern for years. But maybe even more worrying is the drying up of the new product pipeline.
Restoring Investor Confidence
Despite slowing growth, Apple is still a hugely profitable company that can buy back tons of its own shares and hike dividends, which helps boost the attractiveness of its valuation. But what Apple really needs is innovation.
At the same time, Apple's core investment thesis hasn't really changed. It's still a leading company with excellent global vertical integration.
The investment in Apple stock is for the company's decades-long growth potential in consumer electronics, the integration and added value of services like Apple TV and Apple Music, and the development of new products.
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