Apple (NASDAQ: AAPL) stock has experienced a sharp pullback recently. Back in August, it was trading near $175. Today however, it’s closer to $140.
I already own some Apple stock in my portfolio. And it has been a great investment since I bought it. Should I buy more shares after the recent fall?
Is the stock cheap?
Let’s begin by looking at Apple’s current valuation to set the scene.
At present, Wall Street analysts expect the tech giant to generate earnings per share (EPS) of $6.44 for the year ending 30 September 2023. This means that at Apple’s current share price of $144, the forward-looking price-to-earnings (P/E) ratio here is about 22.
Is it worth that kind of multiple? I think so.
A world-class company
Apple is very much a high-quality company.
For a start, it has a wide range of products that consumers love and depend on (iPhone, iPad, MacBook, iMac, Apple Watch and more). What’s great about these products is that they all talk to each other. This creates a competitive advantage. As a result of this ‘ecosystem’, consumers are less likely to switch to a competitor’s product.
This isn’t the only competitive advantage Apple has though. Another is its brand – which is synonymous with quality, performance and innovation. According to research by Kantar BrandZ, Apple is the most valuable brand in the world.
It also has long-term growth potential. Recently, the company has been moving into areas such as electronic payments and healthcare. And there are rumours that it’s working on a fully autonomous self-driving vehicle. So, while the smartphone market may be saturated, there’s still a long growth runway ahead.
Finally, its financials are rock solid. This is a company with a strong balance sheet and a high level of profitability (return on capital employed was 48% last year). It also pays regular dividends and has been buying back a ton of its own shares recently.
Given its high-quality attributes, I think Apple deserves a premium valuation.
Consumer spending is the big risk
Of course, there are risks to consider.
I think the biggest risk to consider right now is a pullback in consumer spending. This could have a negative impact on Apple’s sales and profits in the short term. If sales and earnings were to miss analysts’ estimates (Q4 earnings are due next week), the stock could experience further weakness.
However, as a long-term investor, I wouldn’t be too concerned if the share price was to fall another 10% or 20% from here in the near term due to weaker-than-expected earnings. If I was to buy more Apple stock, I’d be looking to hold it for the next decade. And I think the chances of the stock delivering solid returns over that kind of timeframe are quite good.
My move now
So in conclusion, I’d be willing to buy more Apple stock at the current price. It’s probably not the first stock I’d buy right now, as I already have quite a large position here. I don’t want to be overexposed to it.
However, if the stock stays at this price for a while, or heads lower, there’s a good chance I’ll be adding to my position. I like the long-term growth story.