Need to buy Apple now?

Apple (WKN: 865985, 0.83%) is one of the most well-known companies in the world and has made many shareholders rich over the last few decades. Its ability to consistently create innovative technical products and services keeps the company at the top of the list for a wide mass of consumers.

But is Apple stock still a buy for long-term investors right now?

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Services and the iPhone are driving Apple’s success

Apple has delivered solid growth despite its massive size. Over the past ten years, the company’s sales have grown by 12.9% annually. This means that sales have grown from $ 156 billion in 2012 to $ 366 billion in 2021. The iPhone fueled Apple’s success during this period. The popular smartphone is now in its 13th generation in the pockets of around 1 billion people worldwide.

Perhaps just as important is the fact that Apple is gradually expanding its service business. This segment includes streaming services Apple Music and Apple TV +, which have grown to over 825 million paid subscriptions worldwide, an increase of 165 million over the last year. For the most recent quarter, which ended March 26, Apple’s service segment revenue was $ 19.8 billion. The company’s total turnover in that period was $ 97 billion.

The service segment is crucial because it generates higher margins than the product segment. In the most recent quarter, the gross profit in the product segment was 36.4%, while it was 72.6% in the service segment. Growth in its service business has helped Apple grow its operating revenue from $ 55 billion in 2012 to $ 109 billion in 2021.

APPLE OPERATING INSERT (ANNUALLY) DATA OF YCHARTS.

Still, Apple’s business is not without challenges. Disruptions in the supply chain affect the company’s ability to exploit consumer demand. Management expects Apple to lose $ 4-8 billion in revenue in the current financial quarter because it will not be able to fully meet customer demand. There is no telling how long this problem will last, as the long-term effects of the pandemic and other macroeconomic factors resonate throughout the global economy.

Are Apple stocks too expensive?

APPLE PRICE FOR CASH FLOW RATIO. DATA FROM YCHARTS.

Apple trades at a price-to-free cash flow ratio of 25.9 and a price-to-earnings ratio of 26.1. By these standards, the stock is not cheap – but it is not expensive either. Given that Apple has shifted more of its business to recurring revenue, which generates higher margins, over the past decade, it can be argued that this justifies a higher P / E ratio.

In addition, Apple is compared to one of its biggest competitors Microsoft traded at a discount using the same metrics.

The verdict

Deciding whether to buy Apple shares at current levels is not easy. Stocks are not cheap and the company is struggling with supply chain shortages and rising input costs. Consumer demand has been incredibly strong since the outbreak of the pandemic, but it may be weakened as higher inflation erodes people’s disposable incomes.

However, Apple has always developed innovative products that generate annual sales in the billions. That ability can lead to solid returns for investors over the next five to 10 years. So if you are a long-term investor, Apple shares may be for you.

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This article was written by Parkev Tatevosian and was published on Fool.com on 5/6/2022. It has been translated so that our German readers can participate in the discussion. Parkev Tatevosian holds positions in Apple. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool recommends the following options: long March 2023 $ 120 calls on Apple and short March 2023 $ 130 calls on Apple.

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