Source: PaxForex Premium Analytics Portal, Fundamental Insight
Two years after becoming the first publicly-traded company with $1 trillion in sales, Apple became the world's first $2 trillion company in August 2020. Such expansive growth in recent years makes it clear that the company has done very well and that Apple shareholders made the right choice.
After such tremendous growth, some investors may wonder whether Apple stock is still a smart investment. Let's take a closer look and try to figure out if Apple stock is still worth considering.
As you know, Apple has established itself as one of the world's leading brands, and the company has become synonymous with elegant, fashionable tech. As a result, Apple's iconic products - from iPhones and iPads to MacBooks and AirPods - are massively popular around the world. And that makes it hard for little-known companies to compete with this tech giant.
When it comes to Apple's scale, there were 1.65 billion devices worldwide as of December 2020. Moreover, the iPhone is the most popular smartphone in North America and the iPad is the world's leading tablet. While this makes future growth in these markets difficult, Apple's huge user base is still a valuable asset, and it may be key to unlocking future opportunities.
In late 2018, Apple refocused its growth strategy on services. At the time, it was the App Store, Apple Pay, advertising and cloud services, and some subscription services like Apple Music. But over the past two years, Apple has launched several new products that have greatly expanded its services ecosystem.
In March 2019, the company partnered with Goldman Sachs and Mastercard to launch the Apple Card credit card. Shortly thereafter, the company announced its new gaming service (Apple Arcade) and new streaming service (Apple TV+). More recently, in late 2020, the company launched Apple Fitness+, bringing workouts led by professional trainers to various Apple devices.
Last year, Apple's services generated $53.8 billion in revenue or about 20 percent of total sales. But the company's recent innovation surge is a good sign, and the expansion of Apple's services portfolio could be a major growth driver going forward. Moreover, Apple's gross margin on services in 2020 was 66%, more than double the gross margin on products. In other words, since services make up a large part of total sales, Apple should become an increasingly profitable company.
Weak iPhone sales in 2019 and pandemic-related hurdles in 2020 have slowed Apple's sales growth. But Apple's growth accelerated significantly in the first quarter of fiscal 2021 (reported late last month), helped by a wave of new products.
Apple's performance in the last quarter showed strength in all product categories. The recent release of the iPhone 12 family with 5G support boosted iPhone sales by 17 percent over the previous year. Similarly, Apple's latest M1-enabled MacBook models led to a 21% year-over-year increase in Mac sales. And service revenues were up 24% year over year, thanks to growth in App Store sales, advertising, and cloud services.
Investors should be pleased that Apple's year-over-year sales growth reached 20 percent, and even more pleased that all of its MacBook segments showed strength. Apple products continue to be in high demand, and that's a good sign for the company's future. If Apple can continue to increase its share of global device production, the company's service business should continue to gain momentum quickly.
Apple is already a huge global enterprise, and to make a significant impact on its growth trajectory, Apple's service business must be correspondingly huge. This can be a daunting task, especially since Apple will have to face several strong competitors.
Android smartphones, for example, have a much larger share of the global market than Apple's iPhone, giving the Google Play Store a serious advantage over the App Store. Also, Apple TV+ may struggle to gain traction in the increasingly competitive streaming market, especially given the level of success that Netflix and Disney have already achieved there.
Investors should also note that Apple has been working on an electric car for autonomous driving as part of the Titan project since 2014. Recent rumors about the company's upcoming partnership with Hyundai have gone nowhere, but within hours of this announcement, Nissan signaled interest in collaborating with the tech company. While details are still murky, investors should be paying attention.
Apple has gotten to where it is today through incredible innovation. From the first iPod to the latest iPhone, the company has successfully captivated consumers for years. So, it would be illogical to bet against Apple's ability to create new market opportunities (i.e., the Apple car). Besides, the company has strong leadership in CEO Tim Cook, incredibly deep pockets, and one of the most valuable brands in the world. From this perspective, Apple still looks like a solid long-term investment.
While the price is above 125.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 135.00
- Take Profit 1: 139.00
- Take Profit 2: 145.00
Alternative scenario:
If the level 125.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 125.00
- Take Profit 1: 120.00
- Take Profit 2: 113.00