Apple Inc. (NASDAQ:AAPL) shares had fallen about 3% in post-market trading after the tech giant delivered its second quarter fiscal 2017 financial results last Monday. However, deepening in the Apple’s report investors have realized that the quarter results had been very positive, and AAPL’s shares have continued their strong rally. In fact, AAPL’s shares have climbed nearly 60% in the last year, compared to an increase of 17% for the S&P 500 index and a rise of 29% for the NASDAQ Composite Index during the same period.
AAPL Weekly Chart
Chart: TradeStation Group, Inc.
While Apple’s revenue in the recent quarter of $52.90 billion missed analysts’ average estimate of $53.09 billion, its earnings per share of $2.10 were better than expectation for earnings of $2.02 per share. In fact, Apple beat earnings per share expectations in its last four quarter, as shown in the table below.
Revenues from iPhone of $ 33.25 billion in the quarter were up 1.2% from the same quarter a year ago despite the decline in the number of units sold due to a better product mix. Although at the beginning some investors had considered these results disappointing, many analysts had found these iPhone sales figures encouraging taking into account that many potential buyers are waiting for the next revolutionary model scheduled for the fall of this year.
There were many bright points in Apple’s recent report; sales of other products which includes Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories increased 31% year-over-year to $2,873 million. Also, services revenues, which includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing and other services, increased by 18% from previous year quarter to $7,041 million.
In my view, CEO Tim Cook’s announcement on the company’s earnings call that sales of the Apple Watch have nearly doubled year-over-year is very encouraging. As a user of Apple Watch first model before and the second model since it was ready for sale, I must admit that I like it every day more. Also, the significant improvement of Apple Watch Series 2 over the first model with the GPS and water resistant to a depth of 50 meters should, in my opinion, attract many more buyers.
To get an idea if after its strong rally AAPL’s stock is not overvalued, I have compared, in the table below, some important valuation parameters with the other three technology giants; Alphabet Inc. (GOOGL), Microsoft Corporation (MSFT) and Facebook, Inc. (FB). The table clearly shows that according to its valuation multiples, AAPL’s stock right now is cheaper than the other mega tech companies. Apple has the lowest trailing P/E at 17.42, and lowest projected P/E at 14.38, its price to sales ratio of 3.56 is also the lowest. What’s more, its price to free cash flow ratio is also the lowest in the group.
AAPL’s shares are my biggest holding, and I am recording significant price appreciation apart from the dividend payment. However, the person who is really enjoying Apple’s rally is the legendary investor Warren Buffett who has raised Berkshire Hathaway’s (BRK.B, BRK.A) investment in Apple’s shares recently. Berkshire started to buy Apple’s shares in mid-2016, and it has now about 133 million shares valued about $19.8 billion. Since Berkshire began to buy AAPL’s shares at about $110, it is quite obvious that it has achieved a large profit so far.
Top analysts according to TipRanks are extremely bullish on the AAPL’s stock. In fact, 19 best performing analysts reiterated their recommendation on the stock during the last seven days giving it on average a target price of $160.68 which represents an upside of 7.7% over May 5 close price of $148.96. Considering the upcoming iPhone 8 which could attract high demand, I believe that AAPL’s stock could go even higher.
Despite the strong rally in AAPL’s stock, it is still very attractive, in my opinion. The launch of iPhone 8 this fall could attract many buyers, and Apple’s Services and Other Products segments are showing strong growth. What’s more, according to its valuation multiples, AAPL’s stock is even more attractive than the other technology giants Alphabet, Microsoft, and Facebook.
DISCLAIMER: I own shares of AAPL and FB, and I do not own shares of GOOGL and MSFT right now. This article expresses my ideas and opinions. I believe that the information I have given in this article is from reliable sources and accurate. I recommend readers to do their research before making any investment decisions.