Apple Stock Forecast: Long-Term Growth Strategy

He Xu  This “Apple Stock Forecast” article was written by He Xu – Financial Analyst at I Know First

Summary

  • The majority of Apple’s new models’ prices have remained the same, which implies that AAPL fits its growth strategy.
  • Despite having a larger level of debt than the average company, Apple remains a secure stock that is deserving of investment.
  • Apple Inc. (AAPL) is still rated as a Buy because of better-than-expected profitability and impending product launches.

Overview

Apple Inc. (Apple) develops, produces, and distributes smartphones, laptops, tablets, wearable technology, accessories, and a variety of connected services. The company runs several platforms, including the App Store, which enables users to find and download software and digital content including podcasts, books, music, and videos. Several Apple subscription-based services, such as Apple Arcade, Apple Music, Apple News+, Apple TV+, and Apple Fitness+, provide access to digital material. Other services provided by Apple include AppleCare, iCloud, Apple Card, and Apple Pay. Through its retail and online stores, as well as its direct sales team, Apple sells its goods directly to individuals, small and mid-sized enterprises, as well as customers in the education, enterprise, and government sectors. The Americas account for about 40% of the company’s revenue, with the remaining 60% coming from elsewhere.

(Source: flickr.com)

Apple Revenue Structure

According to an estimate from Bloomberg, the company’s overall revenue going forward is expected to reach $392,525.29M, up from $365,817.00M last year. The primary source of income is the iPhone, and specifically, it is projected that revenue from the iPhone will rise to $205,217,46M from $191,973M. Apple recognizes the long-term growth drivers as evidenced by the latest Apple event. AAPL has increased demand for its iPhone products while encouraging users to choose the premium and more expensive versions or variants by maintaining selling prices for the majority of its products mostly unchanged.

In addition, it is predicted that iPad sales will decline over time. Other goods and services revenue continues to expand. In conclusion, over the past three years, sales of four key products and services have steadily increased, with the average growth rates for the iPad at 20.33%, the Mac at 12%, the iPhone at 7.33%, Wearables, Homes, and Accessories at 30.33%, and services at 19.67%.

(Source: Bloomberg)

Apple Stock Forecast: Estimate Apple’s Performance

Apple is estimated to gain huge revenue during 2022, therefore I analyze the ability of Apple’s profitability by comparing it with the industry. Operating Margin of 30.53%, Net Margin of 25.71%, ROE of 153.37%, and ROIC of 33.75% are better than 95% of companies in the Hardware industry. Therefore, Apple shows good profitability ability.

(Source: gurufocus.com)

However, Apple today is facing a debt burden. High leverage means higher risk. Apple’s cash to debt ratio for the quarter that ended in Jun. 2022 was 0.40. If the Cash-to-Debt ratio is less than 1, the company cannot pay off its debt using the cash in hand. Equity-to-asset of 0.17 and asset-to-equity of 2.31 are worse than over 90% of companies in the same industry, therefore Apple has relatively high leverage, which generally means that a company has been aggressive in financing its growth with debt. As a result of the higher interest expense, this may cause unpredictable earnings.

(Source: gurufocus.com)

According to GuruFocus, I analyzed AAPL’s performance based on two indicators, Piotroski F-score and Altman Z-score.Piotroski F-score is a number between 0 and 9 that is used to assess the soundness of a company’s financial position. A score of 9 may indicate that the company’s stock is undervalued and can be interpreted by investors as a good signal to buy the stock. The F-score for Apple is 8, which typically denotes a very favorable circumstance. The Altman Z-score is the result of a credit test that measures the likelihood of a company going bankrupt. Apple is in Safe Zones according to their Altman Z-Score of 7.57. This suggests that the Altman Z-Score is robust. 

Over time, AAPL’s profit margins will rise thanks to positive operating leverage and a more appealing mix that favors higher-priced or higher-margin goods and services. Apple is a safe stock that deserves to be invested in, despite having a higher level of debt.

(Source: gurufocus.com)

I think AAPL continues to warrant a Buy investment rating. A higher-than-expected EPS for AAPL is the first factor. AAPL earnings performed well in the second quarter of 2022. It announced Q2 Non-GAAP EPS of $1.2, $0.04 more than analysts had predicted. EPS consistently exceeded or met the anticipated Consensus EPS based on YahooFinance for the previous four quarters. Second, new product launches at upcoming events are the third catalyst. At the following Apple event in October or November 2022, new iPad and MacBook models might be unveiled, and there might be pleasant surprises in terms of specifications or features that excite the market.

Meanwhile, the Yahoo Finance coverage for the company is performed by 38 analysts: 11 of them take the Strong Buy position, while 21 and 6 of them take the Buy and Hold positions. The analysts’ community puts the average target price for the stock at $181.77 while it is currently traded at $150.70.

(Source: YahooFinance)

Conclusion

Apple understands that the iPhone is the company’s main source of income and that growing demand with constant price will be its long-term growth drivers. I think AAPL is a buy stock with a target average price of $182. According to estimates, Apple’s income would continue to increase. AAPL’s profit margin is higher than nearly 95% of businesses in the hardware sector because of favorable operating leverage, demonstrating good profitability. I am confident that these would result in a bullish outlook for the company’s stock.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the AAPL stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with AAPL Stock Forecast

I Know First has been bullish on the AAPL stock forecast in the past. On July 1st, 2022 the I Know First algorithm issued a forecast for AAPL stock price and recommended AAPL as one of the best stocks to buy. The AI-driven AAPL stock prediction was successful on a 1-month time horizon resulting in more than 17.04%.

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Please note-for trading decisions use the most recent forecast.