Key points
- Apple had a record-breaking last quarter of 2021
- One important area of growth is its services business which is performing strongly
- Though there are some headwinds, I believe the price of this tech giant’s stock is set to rise
The recent report of strong sales figures from Apple (NASDAQ:AAPL) saw its share price rising about 5%. Despite that, it’s currently still down from its all-time high of $182.94 earlier in the year. At the time of writing, the tech giant’s stock is trading at around $170, significantly up from $135 at the beginning of February 2021, but here’s why I think Apple’s stock still has a lot further to rise.
An impressive quarter
The company posted record revenue of $123.9bn for the fourth quarter of 2021, an 11% gain from the year before. This looks even more impressive to me given the backdrop of global supply chain issues and the ongoing Covid pandemic.
In the quarter covering October to December, the firm beat analysts’ estimates for sales in every product category except iPads. It also reported a net profit of $34.6bn.
An increasingly important segment
Though the iPhone still makes up about half of the company’s sales, an increasingly important source of revenue is the tech giant’s services business. This includes software sold through the Apple store, storage space via iCloud and streaming services such as its music, television and fitness subscription platforms.
This is an area I’m paying close attention to as some analysts see this segment as a more reliable revenue source than its physical products. In the quarter, this segment saw sales of $19.52bn, up 24% year-on-year.
To put this into perspective, this is more than the combined sales of iPads and its Mac computers.
More good news to come?
During the course of 2021, the share price increased by around 30%. Despite a jump of around 5% in the stock following the earnings report, at the time of writing, it’s still down around 6% year-to-date.
Why might that be? Well, the tech-heavy Nasdaq is down significantly this year as investors switch from momentum stocks to more value-oriented companies. If this trend continues, this could understandably hurt Apple’s share price.
Additionally, governments across the world seem to be targeting large technology firms and any kind of crackdown could hurt the price of its stock. Plus Apple’s products are high-end items. If world inflation soars, or the global economy falters, then sales could decline in favour of more price-competitive brands.
That said, I’m still bullish on this stock.
Apple’s turnover increased by around 30% in 2021 and although average annual revenue growth over the last five years was closer to 10%, that’s still an impressive number. The company’s profitability seems to be improving (from an already strong baseline), with the gross margin increasing every quarter for the last few years. Free cash flow is also high, which will help the company continue buying back shares as it’s done over the past few years. All of this should help drive the share price higher. That’s before even taking into account potential new products such as self-driving vehicles and wearable headsets targeting the metaverse.
In investing nothing is certain, but I’m positive about this tech giant’s stock. For 2022 and beyond, I’m hopeful that Apple’s share price will rise and I’m seriously considering adding it to my portfolio soon.
