Apple (NASDAQ: AAPL) shares have been a great investment in recent times. Over the last two years, Apple’s share price has more than doubled. Meanwhile, over the last five years, it’s up around 380%.
What’s the outlook from here though? Is Apple still a good investment in 2022? Or is it too late for me to buy now that the company’s market capitalisation is near $3trn? Let’s take a look.
Should I buy the shares today?
In order to determine whether Apple stock is worth buying for my portfolio today, there are two main things I want to examine. The first is the company’s growth prospects from here. The second is the stock’s valuation.
In terms of Apple’s growth prospects, I continue to think they look attractive. For starters, Apple should be able to raise its prices in the years ahead as it releases new products. Unlike many other technology hardware companies, it can do this because it has a very strong brand and has developed a fantastic ecosystem. So consumers are willing to pay up.
In the last few years, the price of a standard iPhone has jumped from $699 (iPhone 11) to $799 (iPhone 13). I’d expect to see further price hikes going forward and this should boost revenues.
Secondly, Apple is seeing strong growth in its services division. This encompasses iCloud, Wallet, Apple Music, Apple TV+, and more. Last financial year (ended 25 September 2021), Apple Services brought in $68.4bn in revenue, up 27% year-on-year. I expect revenue here to keep climbing at a healthy rate as people use its services more and more.
Third, Apple is expanding into new growth markets. One such market is small business payments. Recently, the company announced that later this year, merchants in the US will be able to accept Apple Pay and other contactless payments via their iPhones, without the need for extra hardware (like Square’s devices). This is a game-changer, to my mind, as this is an enormous market.
Overall, I’m very comfortable with the growth prospects here. However, I’ll point out that I don’t expect Apple’s top-line growth to be prolific in the near term. This financial year, analysts expect revenue growth of 8%. Next year, they expect growth of 6%.
Does Apple offer value?
As for the stock’s valuation, I think it’s reasonable at the moment. At present, analysts expect the group to generate earnings per share of $6.17 this financial year and $6.57 next. So the P/E ratio here is currently 27.6, falling to 25.9 using next year’s estimates.
That’s not cheap. But I think it’s fair for a company like Apple, given its competitive advantages. I’d be comfortable buying shares at that valuation.
It’s worth noting here that the company is buying back a lot of its own shares right now. This should boost earnings per share, over time.
The verdict
Of course, there are plenty of risks to consider here. Supply chain issues, a drop in consumer spending due to a recession, and competition from rivals such as Samsung and Google are three company-specific risks that come to mind. The stock could also be dragged down if there’s another tech sell-off.
However, all things considered, I see the long-term risk/reward proposition here as attractive. For my portfolio, Apple remains a buy.
