On Tuesday, the first trading day of 2023, shares of Apple Inc. (AAPL, Financial) tumbled approximately 3.74% from the previous close of $129.93. The stock’s market cap dropped to approximately $1.98 trillion and below the $2 trillion mark for the first time since March 2021.
Stock tumbles near 52-week low as preliminary iPhone sales declined during December quarter
A report from Trendforce said in December that Apple’s iPhone shipments tumbled 22% during the December quarter on the back of Covid-19 restrictions in China and decreased consumer confidence due to rising interest rates. For the year ending September 2022, Apple reported approximately $205.5 billion in iPhone sales, approximately 52.1% of total revenue.
Although Apple’s iPhone revenues increased by approximately 7.44% per year on average over the past five years, iPhone sales as a percent of total revenue declined from approximately 63.39% in 2016 to just around 52.48% in 2021.
Likewise, while Apple’s sales in Greater China increased by approximately 12.31% per year on average over the past five years, China sales as a percent of total revenue declined from approximately 22.49% in 2016 to approximately 18.82% in 2022.
On the back of lower estimated iPhone sales, shares of Apple closed at $125.07, down approximately 3.74% from the previous close and approximately 0.72% above its 52-week low of $124.17. The stock is modestly undervalued based on its price-to-GF Value ratio of 0.72 as of Tuesday.
Apple’s fundamental data remains strong
Despite the market cap decline, Apple has a GF Score of 98 out of 100, driven by a rank of 10 out of 10 for profitability and growth, a GF Value rank of 9 out of 10, a momentum rank of 8 out of 10 and a financial strength rank of 6 out of 10.
The stock has seven positive investing signs, which include increasing profit margins, consistent revenue growth and a price-earnings ratio that is near a two-year low. Additionally, Apple’s dividend yield of 0.73% is near a two-year high.
Financial strength
Apple’s financial strength ranks 6 out of 10 on the back of a high Altman Z-score of 6.29, an interest coverage ratio of 40.75 and a cash-to-debt ratio of 0.4. Although the company’s interest coverage ratio outperforms approximately 64% of global competitors, Apple’s cash-to-debt and debt-to-equity ratios underperform approximately 76% and 96% of global hardware companies.
Apple's Beneish M-score of -2.66 suggests the company is not likely to engage in earnings manipulation.
Profitability
Apple’s profitability ranks 10 out of 10 on the back of returns on equity and assets outperforming approximately 99% and 98% of global competitors. The company’s operating margin has increased by approximately 2.7% per year over the past five years and is outperforming more than 97% of global hardware companies.
Growth
Apple’s growth ranks 10 out of 10 on the back of three-year revenue growth rates outperforming approximately 85% of global competitors, three-year Ebitda growth rates outperforming approximately 68% of global competitors and three-year earnings growth rates outperforming approximately 68% of global competitors.
GuruFocus ranked Apple’s business predictability five stars out of five, showing the stock had consistent revenue and earnings growth over the past 10 years.
Valuation
Apple’s GF Value ranks 9 out of 10 despite the company’s price-earnings ratio of 20.47 underperforming approximately 59% of global competitors, albeit trending near a two-year low.
Based on earnings of $6.11 per share and a 10-year growth rate of 14.9%, Apple is valued at $148.56 assuming the default DCF Calculator parameters of 10 years of terminal growth at 4% and a discount rate of 10%. The discount rate equals the 10-year Treasury constant maturity rate rounded up to the nearest integer plus a 6% equity risk premium.
According to the Valuation Box, Apple is undervalued based on GF Value and DCF valuations, yet overvalued based on earnings power value, projected free cash flow, median price-sales value and Graham number. Despite this, Apple’s price-sales ratio of 5.18 is near a two-year low.
Momentum
Apple’s momentum ranks 8 out of 10 on the back of nine-day and 14-day relative strength index measures outperforming approximately 70% of global competitors. The company's 14-day relative strength index of 37.33 suggests possible undervaluation.
While Apple’s 12-1 month momentum indicator of -16.93% outperforms just 54% of global competitors, Apple’s 6-1 month momentum indicator of 8.27% tops more than 67% of global hardware companies.
Apple remains Berkshire’s top holding
As of the third-quarter 13F equity portfolio update, Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) owns 894,802,319 shares of Apple, giving the position 41.76% equity portfolio weight. The stock has been Berkshire’s top holding since December 2017, with the weight increasing from approximately 14.63% in December 2017 to over 47% in December 2021.
Other gurus with holdings in Apple include Ken Fisher (Trades, Portfolio)’s Fisher Investments, Spiros Segalas (Trades, Portfolio)’ Harbor Capital Appreciation Fund and Jeremy Grantham (Trades, Portfolio)’s GMO.
