Warren Buffett has been aggressively accumulating Apple Inc. (AAPL) shares since 2016 in the Berkshire Hathaway (BRK.B) equity portfolio. Buffett’s Berkshire owns nearly 890 million shares of Apple, for a market value of about $890 billion. This makes AAPL Buffett’s top holding by far. The stock represents over 42% of Berkshire’s total investment portfolio.

Tech giant AAPL reported solid fourth-quarter results despite a challenging macroeconomic backdrop. The company posted $90.10 billion in revenues, up 8% year-over-year. Its earnings per share came in at $1.29, increasing 4% year-over-year.

Luca Maestri, AAPL’s CFO, said, “We continued to invest in our long-term growth plans, generated over $24 billion in operating cash flow, and returned over $29 billion to our shareholders during the quarter. The strength of our ecosystem, unmatched customer loyalty, and record sales spurred our active installed base of devices to a new all-time high.”

AAPL’s Board of Directors declared a cash dividend of $0.23 per share of common stock, payable on November 10, 2022. It pays a dividend of $0.92 annually, which yields 0.66% at the current share price. Its 4-year average dividend yield is 0.91%. Its dividend payouts have increased at a CAGR of 6.2% over the past three years and 8.2% over the past five years. The company raised its dividends for nine consecutive years.

However, investors have turned their backs on tech stock AAPL as soaring inflation weakened consumer demand. On September 28, AAPL dropped plans to increase production for its new iPhone 14 this year on slower consumer demand. Sales of new iPhones are below expectations, especially in Europe and China.

Moreover, in September, Bank of America Corp. (BAC) analyst Wamsi Mohan downgraded AAPL from Buy to Neutral and cut its price target from $185 to $160 per share. He warned that demand trends could worsen heading into the new fiscal year.

AAPL has declined 23.4% in price year-to-date to close the last trading session at $139.50.

Here is what I think could influence AAPL’s performance in the upcoming months:

Robust Financials

AAPL’s total net sales increased 8.1% year-over-year to $90.15 billion for the fiscal 2022 fourth quarter ended September 24, 2022. Its gross margin grew 8.3% year-over-year to $38.10 billion. The company’s operating income amounted to $24.89 billion, up 4.7% year-over-year. Its net income increased marginally year-over-year to $20.72 billion.

Furthermore, the company’s earnings per share came in at $1.29, registering an increase of 4% from the prior-year period. Also, it generated an operating cash flow of $24 billion during the quarter.

Mixed Growth Estimates

Analysts expect AAPL’s revenue for the fiscal 2023 first quarter (ending December 2022) to come in at $126.44 billion, indicating an increase of 2% year-over-year. However, the consensus EPS estimate of $2.06 for the same quarter indicates a 2.1% year-over-year decline.

In addition, the company’s revenue and EPS for the fiscal year 2023 (ending September 2023) are expected to rise 3.4% and 2.3% year-over-year to $407.64 billion and $6.25, respectively.

Premium Valuation

In terms of forward non-GAAP P/E, AAPL is currently trading at 22.32x, 23.3% higher than the industry average of 23.26x. The stock’s forward EV/Sales multiple of 5.33 is 111% higher than the industry average of 2.53. Likewise, its forward Price/Sales multiple of 5.44 compares with an industry average of 2.43.

Furthermore, in terms of forward Price/Book, AAPL is currently trading at 40.20x, 986.9% higher than the industry average of 3.70x. The stock’s forward Price/Cash Flow multiple of 19.47 is 16.6% higher than the industry average of 16.69.

High Profitability

AAPL’s trailing-12-month EBIT margin of 30.29% is 323.4% higher than the industry average of 7.15%. Its trailing-12-month EBITDA margin of 33.10% is 174.8% higher than the industry average of 12.05%. Moreover, the stock’s trailing-12-month net income margin of 25.31% is 558.6% higher than the industry average of 3.84%.

In addition, AAPL’s trailing-12-month levered FCF margin of 22.88% is 205.7% higher than the industry average of 7.48%. Its trailing-12-month ROCE, ROTC, and ROTA of 175.46%, 39%, and 28.29% compare to the industry averages of 6.51%, 3.69%, and 2.08%, respectively.

POWR Ratings Reflect Bleak Prospects

AAPL has an overall rating of C, translating to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has a grade of A for Quality, consistent with its higher-than-industry profitability metrics. In addition, it has a C grade for Growth, in sync with mixed analyst estimates.

AAPL is ranked #13 out of 41 stocks in the D-rated Technology-Hardware industry.

Beyond what I have stated above, we have also given AAPL grades for Sentiment, Momentum, Value, and Momentum. Get all AAPL ratings here.

Bottom Line

AAPL’s revenue and net income have increased at 14.9% and 21.8% CAGRs over the past three years. However, the company’s near-term prospects look bleak amid growing concerns about declining consumer demand. Given AAPL’s limited near-term growth prospects and higher-than-industry valuation, we think it could be wise to wait for a better entry point.

How Does Apple Inc. (AAPL) Stack up Against Its Peers?

AAPL has an overall POWR Rating of C. One could also check out these other stocks within the Technology-Hardware industry: Canon Inc. ADR (CAJ) and Seiko Epson Corporation (SEKEY) with an A (Strong Buy) rating and TDK Corp. ADR (TTDKY) with a B (Buy) rating.

AAPL shares fell $0.68 (-0.49%) in premarket trading Wednesday. Year-to-date, AAPL has declined -21.40%, versus a -18.92% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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