Apple (AAPL 1.66%) has been a great long-term investment, but the stock is down about 23% year over year. The fall comes as investors are concerned about skyrocketing inflation and aggressive stance by the Federal Reserve, and federal funds are trying to bring it back by raising rates.
The decline in Apple’s share price, mixed with general pessimism in the market right now, has left some investors wondering whether Apple stock is still a buy. I think there’s a strong case for adding more shares (or starting a position) in the tech giant right now. Why here?
Tons of cash to weather any storm
Some investors are exiting technology stocks right now partly because many of them are not profitable and will not be for years to come. Apple doesn’t have this problem.
At the end of the most recent quarter, the company had $193 billion in cash. Even when you account for the company’s debt, Apple still had $73 billion left.
At a time when investors are looking for profitable companies that can weather a potential economic downturn, Apple appears to be a no-brainer.
Service revenue continues to grow
Apple has built a very successful services business that some investors still can’t fully appreciate. Consider that in the company’s second quarter, Apple’s services revenue rose 17% year over year to $19.8 billion.
Apple’s services revenue accounts for more than 20% of the company’s total sales, and the tech giant now has 825 million service customers, a 25% gain over the past 12 months.
Apple already has a remarkable gross margin of about 44%, but its services gross margin is even better, around 73%. Investors should also consider that Apple still has more opportunities in the services space, including potential subscription plans for its iPhone and other devices.
Huge potential for new products
Bloomberg reported back in May that Apple had shown its board of directors an augmented reality (AR) and virtual reality (VR) headset. Apple has focused a lot on AR with iPhone apps over the past several years, but AR devices could be a big step into a new category.
Showing off its board could indicate such a device is close to releasing the company, perhaps as early as next year. Renowned Apple analyst Katy Huberty estimates that AR/VR devices could bring Apple $29 billion in revenue by 2026.
While these are only estimates based on a possible Apple device, the company appears to be close to such a product. Apple CEO Tim Cook said this month that people should “keep on and you’ll see what we have to offer” in the AR space.
While Apple hasn’t confirmed an AR device yet, Cook’s comments indicate that Apple has bigger plans for this space than just AR apps.
Apple continues to create shareholder value
And finally, Apple has increased shareholder value by using its cash hoard for share buybacks and dividend payments.
Apple’s CFO, Luca Maestri, said on the company’s most recent quarterly earnings call, “Our strong operating performance generated more than $28 billion in operating cash flow and expected us to return approximately $27 billion to our shareholders during the quarter.” Gave permission.”
That figure comes from a 5% increase in Apple’s dividend and ongoing share repurchases — more to come. Apple’s board approved a $90 billion increase to the company’s existing share repurchase program, which will continue to add value for existing shareholders by reducing the number of shares on the market.
With all of the above in mind, Apple’s stock looks like a great deal, especially at a time when investors are wisely focusing on finding profitable companies that still have room to grow.