Should You Invest in Apple Stock?

Forecasts · Sep 12, 2019

Today we are starting a new category on our website - stock forecasts. We’ll share an opinion on stocks' future prices, analyze them from technical and fundamental points of view, and give our recommendation on whether we would consider buying, holding or selling a particular market security.

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In this article, we’ll talk about the famous IT giant - Apple Inc.

Table of Contents

Technical Analysis and Some History

Let’s start with exploring NASDAQ: AAPL stock’s price history and its graph.

Apple stock price history

All-time historical picture looks promising (a sharp fall around 2014 is a result of 1 to 7 stock split so it didn’t hurt the investors), the IPO of Apple company happened a while ago, in 1980, but the real growth of Apple shares' price started in 2005. Steve Jobs led the company to its golden age, from 2005 to 2011 the stock price went up by a lot to almost $100 USD, but even after Steve passed away, the growth continued. Some people argue that the followed growth is a result of Jobs' legacy, his philosophy, and his stunning technological achievements.

The company’s stocks had another stable period of growth from 2016 to 2018 to its highest point yet of $225, but then we witnessed a correction of Apple’s stock price and a start of a weird and uncertain trend.

Some analysts explain it by September’s decision of Apple company to no longer offer unit sales data for its products, which led to a small panic among investors.

Apple’s stock price went down by 6.6% the day after the earnings report came out. The stock price continued its fall and dropped by 30% quite fast because people raised questions about the real demand for the newest iPhone models.

2019 started at a low price point of $150, but this year was quite promising. The stock price went up to $200 levels and, once again, it’s getting closer to the record levels that we saw before and that’s why we decided to write about the company right now.

Will Apple’s stock set a new price record and, if so, when will it happen?

The 1-year graph presents a nice picture with an upwards trend and a corridor. According to this graphical analysis, the next low levels might be at $200 very soon, and then, maybe, at $220 around November 2019, at the end of the year.

The next high levels, according to this analysis, would be at $240 around December 2019, and $260 January-February of 2020.

In any case, we are seeing a clear bull trend so far with just a few mildly concerning signs.

Yet, it looks like at the end of 2019 the graph might come to a worrying point and there is a chance that the trend will change its direction. This assumption is based not on the 1-year graph, but on the 5+ year historical picture. If the stock will safely pass the new year point without falling lower than $210, we can assume that the bull trend will continue in 2020.

Trading Volume

It’s quite interesting to see the current trading volume of Apple’s stocks. There is a clear downfall from the highest point in August (220m) to 82m at the start of September 2019.

Now it looks like that the volume is turning around and going to go up again, therefore people are preparing for the action which they assume will happen before 2020 begins: in October, November, and December.

Fundamental Analysis

Fundamentally, Apple company is still in a healthy shape and we can see it in its annual net income reports:

  • 2018: $59b (+23%)
  • 2017: $48b (+6%)
  • 2016: $45b (-15%)

2019 might end with a similar net income result as in 2018, thus there is nothing to be concerned about. The growth is slowing down by a bit, but the company is still impressively profitable.

If we look at the revenue and other fundamental values, 2019 appears to be an ok year for Apple, although 2019 is not going to bring a lot of growth in terms of the revenue.

That being said, Apple still has an outstanding net income and a huge stockpile of cash ($245b) in addition to its other liquid assets.

Another important thing to look at would be the total number of employees working for a company. Apple hires more people every year and this trend is stable. Some people would argue that in the modern world, having fewer employees is actually a good thing, as it decreases the company’s expenses. Our point of view is that a growing number of well-paid workers is a positive sign in Apple’s case.

When a company suddenly fires a lot of people, that would be an alarming sign.

Key Market Indicators

Apple’s EPS ratio is still fine in 2019, it didn’t grow as much as it did in 2018, but it’s still going to go up by 6-7%.

The EBITDA indicator is going to have a small decline (2-4%) at the end of 2019, but our view is that EBITDA is not that representative metric.

The P/E ratio is at 19 right now, which is quite high (it was on such levels only in 2010 and earlier).

The Current Ratio is healthy too (around 1.5). The Quick Ratio is at a similar level and it’s quite stable.

Long Term Debt

For a long time, Apple refuted to accumulate debt because they believed that they didn’t need additional capital as the company had a nice cashflow already, but starting from the Summer of 2014 they changed their policy.

From 2014, Apple started to accumulate more long term debt, raising its levels to $109b at the start of 2018. In 2018 the policy was reversed again and they decided to decrease the amount of debt, so now its debt to equity ratio is at 0.88, which is quite normal. The situation with Apple and how this company managing its free cash is quite complicated, so we are not going to go deep into this in our article, but it’s worth to mention that right now the company wants to reduce its LT debt.

New iPhone 11 and Other Products

In 2019 iPhone sales dropped by 17%; painful, but not catastrophic.

Recently, Apple introduced a new iPhone 11 at a cheaper price, which is predicted to have decent sales. There is a growing skepticism towards some of Apple’s products but such a step to reduce the price by a little bit is seen as a promising one. Even if the cellphone market is not going to be the most attractive market of all for the company, Apple started to diversify a while ago by offering other products and even services.

Tim Cook’s company now offers:

  • iPhone
  • Mac
  • iPod
  • iPad
  • Apple Watch
  • Apple TV
  • HomePod
  • Apple Music
  • Apple Card (a credit card)
  • And more…

With such a variety of products and services, the company can afford to have a weak year on one market, but at the same time, it has a lot of capabilities to expand in other markets.

Apple is no longer a company with only a few products, it’s becoming more diversified.

Dividends

Apple’s average historical dividend yields were:

  • 2019: 1.5%
  • 2018: 1.4%
  • 2017: 1.5%
  • 2016: 2.2%
  • 2015: 1.7%

Their dividends are usually staying in the corridor of 1.5 - 2.5%. These are quite conservative yields, but knowing that the main source of income for investors in Apple’s stocks is capital growth, dividends come as a nice additional bonus.

That being said, 1.5% yield is still something, compared to the banks savings accounts or to something similar.

Conclusion and Forecast

What would be the conclusion and the verdict?

Apple stays in the major league of the top American IT corporations and its positions on all fronts are strong. 2019 doesn’t look very promising for the company, but based on the current numbers, it’s very hard to say that investors should expect something terrible in the near future. The best moment to buy Apple stocks was at the end of 2018, but, as always, many people missed it, as they expected a further downfall from that point ($150).

For those who already have these stocks, the verdict would be to hold them - now it’s not the best time to sell. There is a big chance of further growth of the price in 2020, this growth can be long and stable and it can lead the stock price to new record levels beyond $230. The current bull trend looks quite strong.

If you’re considering to buy some Apple’s stocks right now, it might be a fairly wise choice, although it would be a bit smarter to wait until the start of 2020 to see if the bull trend continues.

Based on the technical analysis it appears almost impossible for the price to fall lower than $150 under any circumstances, so if the price does go down close to this levels (<$170), you might really consider opening a new long-term position at a relatively cheap entry-level.

From the long-term perspective, Apple’s distant future neither looks super bright, nor horrible. It’s still a leading innovator in the IT sector with a huge base of customers who are willing to give the company many more chances to introduce new products, plus all financial numbers are still quite promising. So, in the next 2-4 years, the perspective of Apple appears to be positive. Thus, buying this stock as a long-term investment for your portfolio is still a decent idea.

  • The final short-term verdict: hold, watch and wait until the start of 2020
  • The final long-term verdict: buy

December 2019 Update

This article was published in September 2019, and since then Apple stock showed amazing growth.

The price was $220 back then, and now, just after 3 months, it reached $275. Our prediction about a strong bull trend was correct, but the price moved out of our expected borders. Even the maximum expected high levels of $240 and $260 were beaten.

After this article was published, Apple presented a line of new products which included Apple Watch Series 5, iPhone 11, a new iPad, AirPods Pro, and a new MacBook Pro. iPhone 11 had a quite positive reaction from users and critics; for instance, its rating on Google is 4.5 out of 2,900+ reviews. People noted a reasonable price and it seems that with the iPhone 11 release many users of old iPhones decided to upgrade their devices.

The iPhone XR model released in 2018 seems to be the most popular so far, so it can be said that Apple maintains the momentum that new products gave the company in the previous years.

Market analysis say that a new trade agreement between the U.S. and China had a huge impact on the stock price increase as China stays 3rd market for Apple by size. Fool.com reported that Morgan Stanley analyst Katy Huberty has a $296 price target for Apple, so the growth might continue in 2020.

From the technical analysis point of view, the current price graph looks suspiciously perfect, it’s a clear bull trend as it used to be, but a bigger picture (5-years graph) looks more concerning, as the price moves to the sensitive $300 level. If Apple wouldn’t penetrate this important level, we may see a big correction to $200 - $220 around April 2020, after which the growth might continue. In any case, our forecast was generally correct, but we underestimated the growth strength, so the verdict for the start of 2020 stays pretty much the same: hold until the price comes close to $300 level. Then it might be wise to sell a portion of your positions to secure the gains.

Sources

Here is the list of sources that were used in this article:

apple   analytics   business   diversification   dividends   finance   the united states   income   indicators   investing   market   portfolio   trends

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