Apple (NASDAQ:AAPL) stock is one of Warren Buffett’s favourites. It’s Berkshire Hathaway‘s largest stock position and the Oracle of Omaha routinely praises the company’s management and business model.
Apple reported its earnings for the first quarter of 2022 last night. I thought that the results were pretty good, but the stock was down slightly in response in extended trading.
I don’t currently own Apple shares in my portfolio, because I’ve never seen a chance to grab them at a price that I think is attractive. So could the response to the company’s earnings be the opportunity that I’ve been waiting for?
Earnings
Apple’s revenues from the first quarter came in at $97.28bn. That’s higher than the expectations of $93.89bn and 8.59% higher than they were in the first three months of 2021.
The company’s operating income and net income also increased, resulting in earnings per share (EPS) of $1.52. In the same quarter last year, Apple posted EPS of $1.40.
Results were also steadily positive across Apple’s range of products. Of its various categories, iPhone, Mac, Wearables and Services all posted higher revenues, with only iPad sales (which make up around 8% of the company’s total revenues) down.
In terms of geography, sales in the Americas, Europe and Greater China (which collectively account for 85% of overall revenues) were up. Sales in Japan and the Rest of Asia Pacific geographies were down a bit.
The stock has performed well over the last couple of years, partly driven by its huge share buyback programme. At its earnings call last night, Apple announced its intention to spend around $90bn on share repurchases, having spent $85bn in 2021.
Overall, I thought the earnings report was very positive. Demand for its products seems steady even as consumer products companies battle inflationary pressures.
What next for Apple stock?
Looking forward, I can see a couple of issues for Apple. One is the Covid-19 situation in China, where lockdowns have resulted in some of the factories that make the company’s iPhones being closed earlier this month.
Another potential issue is increasing inflation and the rise in interest rates. Despite its loyal customer base, I’m wary that its products might fall into the nice-to-have category, rather than the need-to-have one and that the next couple of quarters might see a drag on sales.
I think that Apple is a tremendous business and I’d love to own some shares. But I don’t think that the small drop I’m seeing in extended hours is the opportunity that I’ve been looking for.
Operating income increased by around 9% in the last quarter. While I think that’s impressive in what could have been a difficult quarter, I don’t think that it’s attractive enough to justify a valuation of around 27 times earnings, based on what else is currently available.
If I were a shareholder, I’d be pleased by an encouraging quarter. For now though, I’ll keep watching and waiting for an opportunity to buy Apple stock.
