Apple (Apple shares - ticker AAPL) is one of the best-known companies in the world, and has made many shareholders richer in the past few decades. Its proven ability to repeatedly create innovative technological products and services keeps it at the top of the minds of a wide range of consumers.
But for long-term investors, is Apple stock still a buy right now?
Services and the iPhone drive Apple's success
Apple has had robust growth despite its enormous size. Over the past decade, its revenue has grown at a compound annual rate of 12,9%. This translated into an increase in sales from $ 156 billion in 2012 to $ 366 billion in 2021. The iPhone fueled Apple's success during this period. Now in its 13th generation, the popular smartphone is in the pockets of around 1 billion people around the world.
Perhaps equally important, Apple is gradually expanding its services business. This segment includes its Apple Music and Apple TV + streaming services, which have grown to over 825 million paid subscriptions worldwide, and have grown by 165 million over the past year. In its most recent quarter, which ended on March 26, Apple's service segment revenue totaled $ 19,8 billion. The company's overall revenue was $ 97 billion during that period.
The service segment is vital because it generates higher profit margins than the product segment. In its last quarter, the gross profit margin for the products segment was 36,4%, while for the services segment it was 72,6%. The growth of the services business has helped Apple increase its operating income from $ 55 billion in 2012 to $ 109 billion in 2021.
That said, Apple's business is not without challenges. Disruptions to the supply chain are compromising its ability to capitalize on consumer demand. Management expects it will lose $ 4 to $ 8 billion in sales in the current fiscal quarter because it will not be able to meet customer demand. There is no telling how long these headwinds will persist as the long-term effects of the pandemic and other macro factors continue to reverberate in the global economy.
Are Apple Stocks Too Expensive?
Apple is trading at a price-free cash flow ratio of 25.9 and a price-to-earnings ratio of 26.1. For these metrics, stocks aren't cheap, but they're not expensive either. Considering that over the past decade, Apple has shifted more of its business to recurring revenue sales that yield higher margins, it can be argued that it justifies a higher price multiple.
Also, when measured against one of its main competitors, Microsoft, Apple is trading at a discount based on those same metrics.
Whether or not to buy Apple stock at current levels is not an easy decision. Stocks aren't cheap, and the company faces headwinds resulting from supply chain shortages and rising manufacturing costs. Since the start of the pandemic, consumer demand has been incredible, but it could slow down as higher inflation bites into people's discretionary income.
However, Apple has repeatedly created innovative products that have generated billions of dollars in annual sales. This ability could lead to robust returns for investors over the next 5-10 years. So, if you are a long-term investor, Apple stock might be for you.