Apple (NASDAQ: AAPL) has seen a surge in its stock price during 2023, mostly due to the iPhone’s resilience and a general recovery in the technology sector. Apple’s stock has risen by 32% this year, compared to the S&P 500’s gains of just 7%. This marks a stark contrast from last year when Apple’s stock had decreased by around 27%.
The main factor behind Apple’s success this year is the better-than-expected financial results. Investors were surprised by the iPhone’s sales numbers, indicating that the struggling economy that has weighed on the stock might soon recover.
The question now is whether it’s still a good time to invest in Apple’s stocks considering its valuation and economic uncertainty. Here’s a closer look at the situation.
Image source: Apple.
The Factors Weighing on Apple’s Stock
The current economic conditions have played a massive role in the performance of Apple’s stock and the broader market indexes over the past year. The bear market was fueled by 40-year-high inflation and the resulting interest rate hikes designed to keep higher prices at bay. The economic uncertainty has caused a pullback in consumer spending, resulting in slowing sales of the iPhone, Apple’s biggest seller.
During fiscal 2022 (ended Sept. 24, 2022), Apple’s full-year revenue grew by just 8%. Although this is respectable, it’s a far cry from the 33% gains the company generated in 2021. However, it’s essential to note that this downturn is typical, and history shows that when the economy begins to recover, consumers will return to normal spending habits, including upgrading to the latest Apple device. This suggests that pent-up demand could drive Apple stock higher once consumer discretionary spending returns to normal.
The Catalysts Driving Apple’s Stock
In addition to the recovery in consumer spending, numerous catalysts could fuel Apple’s stock rally:
- Apple has a large and growing number of active devices that is continually increasing, translating to more revenue for the company from its established ecosystem. This ecosystem ensures that iPhone users visit Apple’s App Store and spend money on apps, Apple Pay, Apple TV+, Apple Music, amongst others. This not only makes the ecosystem stickier, but it also increases the probability of customers staying with the company’s services, thereby boosting revenue.
- Apple is expanding its presence in emerging markets, such as launching its online store in Vietnam and opening its first retail store in India, the second-largest smartphone market globally. These moves will help Apple tap into new and lucrative opportunities.
- Apple’s rumored mixed-reality headset, which combines virtual reality with augmented reality, could be a game-changer if the device is introduced during Apple’s developer conference on June 5. Many outlets have reported differing expected prices for the device, but most suggest a typical cost of about $3,000, with sales of about a million pieces during the first year of release. Apple has a strong record of creating demand for products that most believed would flop, such as the iPad and Apple Watch.
Investing in Apple Stock Now
Apple currently sells at roughly 22 times trailing earnings, which is a lower valuation than the price-to-earnings (P/E) ratio of 24 sported by the S&P 500. That’s a reasonable price to pay for a company with a strong history of growth.
Apple has several growth drivers that could spark more stock rallies over the longer term. Experienced investors with the discipline to withstand a little volatility should consider buying Apple now or adding to their current position, given the company’s track record and the long runway ahead.
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Danny Vena has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
