While the market has rebounded from the lows of mid-March, many high-quality companies are still well below the peaks seen before the coronavirus wreaks havoc on the global economy and triggers a bear market. Tech giant Apple (NASDAQ: AAPL) is one of those stocks. The shares are still down about 19% from the February peak above $ 327.
It is not surprising, of course, that the iPhone manufacturer’s shares have declined recently. The spread of COVID-19 has not only meant that Apple has closed its retail stores in the U.S. and other markets, but also that consumers are spending less money as jobless claims soar.
The stock can however be oversold. After all, these challenges are probably only temporary. Eventually, the economy will reopen and many consumers and workers will resume their normal lives.
Apple is expected to release its results on April 30, and investors will soon receive an update on the tech giant’s activities – and the update is unlikely to be pretty. But have the stocks been oversold as the market tries to assess Apple’s temporary challenges?
Overview of Apple’s Q2 tax results
The market is expecting poor results from Apple in the second fiscal quarter. In fact, in the middle of the period, management withdrew its forecasts for the quarter. A slower-than-expected return to work at its factories in China following a Chinese New Year to curb the spread of the coronavirus has resulted in a temporary cut in global iPhone supply, management said. In addition, demand for Apple products in the market was negatively affected due to the closure of its stores and those of its partners.
With the epidemic spreading to the United States towards the end of the second fiscal quarter, sales of the technology company’s products likely continued to suffer during the rest of the quarter.
On average, analysts are currently modeling second quarter revenue of $ 56.6 billion, down about 15% year over year. These estimates may decline further as the quarterly report approaches and analysts do their best to update their analyzes to predict the impact of the coronavirus on the quarter’s results.
Is it time to buy?
Although it is impossible to know whether Apple’s shares will go up or down following the tech company’s report, one thing is clear: the tech giant’s stock price currently looks like a good deal for investors who plan to hold the shares for five years or more. Of course, Apple’s hardware activity is expected to hit a big blow in the second fiscal quarter. But the report can also highlight how the tech business is turning into a more resilient business.
For example, a positive turnover of Apple during the quarter could be the turnover of services. Sales and application subscriptions, represented in the tech business services segment, likely received a boost as many consumers around the world stayed at home. IPhone still dominates Apple sales, accounting for 55% of revenue over 12 months, but services have grown as a percentage of revenue over the years, fueled by a growing base of active devices and an increasing number of means to monetize these. users.
Revenues from services represented 18% of revenues over 12 months, compared to 13% two years ago. In addition, the installed base of the company’s active devices at the end of 2019 was 1.5 billion, compared to 1.4 billion 12 months earlier.
It should also be noted that Apple’s service business has a much higher gross profit margin than its hardware sales. Services therefore have a disproportionate impact on the profits of the technology giant. The gross margin for Q1 fiscal services was 64%, compared to a gross margin of 34% for equipment.
The 19% decline in stock from its February peak gives investors the opportunity to buy shares of a leading hardware technology company that turns into a hybrid stock of hardware and services. Given Apple’s strong competitive position in several hardware segments, as well as its rapidly growing service activity, the technology company’s 21-year price / benefit ratio offers investors an attractive entry point today.