Both sides have valid reasons for taking the positions they do. Let’s take a look at the bull and bear case for Apple stock.
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The case for Apple is very strong.
Apple has shown that it can create innovative products. Over the years, the company has tinkered with technologies and innovations to develop some of the most customer-friendly products consumers can buy. Many consumers have adopted Apple’s products due to the ease of use, starting with Mac computers, then iPods, then iPhones and iPad.
Apple’s product development success has resulted in a supplementary services business. Apple’s services business made up 20% of its sales in its most recent quarter. The continued growth of this segment is positive for Apple because this segment of the business delivers a gross profit margin of 72.6% compared to a gross profit margin of 36.4% for the products segment
The data by YCharts is from AAPL operating income.
Apple has lots of profits to boast about. Apple’s operating income increased from $50.5 billion to $108.9 billion. Apple has generated $50 billion in operating income in the last seven years.
The bull case for Apple includes opportunities such as self- driving electric vehicles. Apple is working on a self-driving car that will be available as early as 2025, according to a report. If successful, the product could be a game-changer and reward investors a lot.
The argument against Apple.
The bears will point out that Apple is still an iPhone business, despite all the wonderful things about it. $122 billion of Apple’s $221 billion in revenue was accounted for by the iPhone in the six months that ended March 26. The company’s other products are not as prominent without the iPhone.
There is a valid argument. Advertising sales make up a significant part of Apple’s services revenue. Apple is willing to pay $12 billion per year for the right to be the default search engine on its products, according to a report. The iPhone could not command such fees if it was not so dominant. The narrative of a diversified business with multiple engines for revenue and profit growth has been taken away by that.
YCharts has price to free cash flow data for AAPL.
The bears will point to Apple’s high valuation as a reason to not invest in the stock. Apple had a market cap of over $2 trillion. It goes back and forth with Saudi Aramco over who is the most valuable company on the planet. With the price already so high, there is only so much room to go higher. Apple is trading at a price to earnings and price to free cash flow of 23 and 24 which are historically higher than their ranges.
The bull and bear cases make good points about where Apple stock is headed. I am in the bull camp. The potential for innovations and the rise in the services business justify the premium valuation.
Suzanne Frey is a member of the board of directors for The Motley Fool. Parkev Tatevosian has investments in both Apple and Alphabet. There are positions in and recommendations for Apple, Alphabet and C shares. The long March 2023 $120 calls on Apple are recommended by The Motley Fool. The disclosure policy of the Motley Fool is 35.
Suzanne Frey is a member of the board of directors. Parkev Tatevosian has positions in both Apple and Alphabet. There are positions in and recommendations for Apple, Alphabet and C shares. The long March 2023 $120 calls on Apple are recommended by The Motley Fool. There is a disclosure policy at The Motley Fool.