Although many stocks recovered sharply from the fall in stock markets due to the coronavirus in February and March, some are still well below their recent highs. One such share is Apple. Shares are traded at $276, which is about 16% below the February high. It is noteworthy that the company's shares are much higher than in mid-March. Did investors who were not active in trading miss an opportunity to buy shares of the technological giant? Or is Apple still attractive at this price?
Take a close look at Apple shares - and why they remain a good buy for long-term investors. Like many companies, Apple is likely to see a decline in sales in the first quarter that I ended in March. In mid-February, the company recalled its management and said it faced supply constraints and weakening demand in China. Weak demand was likely to occur in other markets as the pandemic spread. But Apple shares already traded at a discount. If the pandemic turns out to be a temporary disaster, demand for Apple devices may return, and this decline in the value of the tech company's shares may look like a great opportunity to buy in retrospect. Looking beyond the short-term problems associated with the coronavirus, one of the main reasons Apple's potential for growth in the coming years is two fast-growing segments: services and wear and tear, smart home, and accessories. There has been explosive growth in these two sectors recently, and the larger of these two segments may indeed benefit from having more consumers at home in a coronavirus pandemic. The most important catalyst for Apple is the services segment, which includes revenues from the company's services such as Apple Music, Apple Care, and Apple TV+, as well as a share of revenues from the sales of third-party applications and subscriptions to their platform. Services account for 18% of the company's 12-month revenue and are the second largest segment. Also, it operates at a higher gross profit than the rest of the technology giant's business, which allows the segment to harm the result of Apple. For fiscal 2019, Apple's Gross Profit in the Hardware Business was 32 percent, while its Gross Service Income was 64 percent, twice as high. Besides, service revenue is growing rapidly, increasing by 16 percent in fiscal 2019 compared to the previous year. Also, with more people at home, TV viewing time is likely to increase, and revenue from Apple's services may rise sharply during this pandemic. Besides, Apple sells consumer goods, home products, and accessories, which includes income such as Apple watches, AirPods and Beats headphones, and income from Apple smartphones and other accessories. This segment saw even faster growth than the service sector, thanks to the rapid growth in sales of perishable household items. Revenue from home apparel and accessories sales grew 41 percent year over year to 10 percent of revenues for the last 12 months. Not surprisingly, total revenues from services and consumables account for one-third of the technology giant's revenue in fiscal 2020. This is a large enough share of revenue to have a significant impact on Apple's overall business, given the staggering growth rates of both segments.
Of course, Apple investors cannot ignore the iPhone. This product accounted for 55% of revenue for 12 months. Moreover, over the same period, iPhone revenue fell by 6% for the year.
Apple's ability to show a quarter of strong growth with its latest iPhone, combined with the company's fast-growing services and fast-growing product segments - clothing, smart home, and accessories - makes the stock attractive. While there are risks associated with owning any shares, it looks like a good buy opportunity for investors who want to buy long term assets.
