Is Apple (AAPL) Really a Value Stock?


Apple AAPL reported lower-than-expected iPhone sales in its most recent quarter, and all signs point towards its special-edition iPhone X smartphone being less desired than investors originally hoped. To skeptics, this sluggishness foreshadows Apple’s decline from its leadership position in the tech sector.

But for others, Apple’s slightly-disappointing iPhone sales underscore a need for the market to shift its expectations of the company. The Cupertino, California-based behemoth is no longer a high-risk, high-reward tech stock that surges higher on the back of every new product announcement. Instead, AAPL should be viewed as a long-term investment in both the company itself, and the long-term health of the global consumer economy.

One sign that Apple’s status has changed recently is that legendary value investor Warren Buffett has become one of the stock’s biggest proponents over the past two years. Buffett is not known for his speculative nature, so the fact that the iPhone maker has quickly become Berkshire Hathaway’s (BRK.B) largest holding is proof enough for many that AAPL has evolved into a value stock.

But do the company’s actual valuation metrics support this sentiment? After all, Apple has been at the forefront of a multi-year tech rally that has caused plenty of investors to declare the sector a bubble. And value stocks are typically steady climbers, whereas Apple shares have soared roughly 90% over the past two years.

Nevertheless, a look at the company’s Forward P/E chart reveals some very interesting trends:

As we can see, Apple’s Forward P/E of 15 is significantly lower than the average of our “Computers and Technology” sector right now. Apple is also trading at a discount to the broader S&P 500, which currently holds an average P/E of about 17.5.

Apple is sporting a “B” grade for Value in our Style Scores system right now. On top of its attractive P/E, the stock has an impressive PEG ratio of 1.35. We also know that Apple is quite the cash cow, generating a staggering $11.33 in cash per share. Nevertheless, value investors might raise an eyebrow at AAPL’s relatively-high P/S ratio of 3.8.

In many ways, Apple does look undervalued compared to the broader market, as well as the tech sector as a whole. But here at Zacks, valuation metrics are not the only figures we look at when trying to find strong stocks.

Apple (AAPL) NASDAQ Stock 'Can't Get Out of Its Own Way'

Apple (AAPL) NASDAQ Stock ‘Can’t Get Out of Its Own Way’

Apple (AAPL) NASDAQ Stock 'Can't Get Out of Its Own Way'NEW YORK  Apple (AAPL) has reportedly begun discussions with U.S. banks about developing a mobile payments system, but the company’s continual innovation appears to be overshadowed by concern about cell phone demand, TheStreet‘s Jim Cramer said on CNBC‘s Squawk on the Street this morning.

“Obviously, everyone wants to be in this space,” Cramer said.

The younger generation in particular views online payments services such as PayPal (PYPL) as more relevant than credit cards, Cramer noted. His own children call him a T Rex for using a Hewlett-Packard (HPQ) computer and American Express (AXP) credit card.

Despite the industry’s potential, Apple stock is up just 0.16% to $116.29 in morning trading on Thursday.

Investors are concerned that iPhone demand is slowing, especially following Monday’s Credit Suisse report. This is “certainly not demonstrable,” Cramer said.

Cramer pointed out that Apple chip supplier Skyworks reported a good 2015 fourth quarter on Friday, with earnings and revenue in line with estimates.

All of Apple’s innovation is a positive for the company, but the stock “just can’t get out of its own way right now,” he added.

“If Apple stock goes up today, it’s gonna be a day that people will regret that they didn’t buy,” Cramer said.

Separately, TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

We rate APPLE INC (AAPL) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, robust revenue growth and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company’s strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • APPLE INC has improved earnings per share by 38.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, APPLE INC increased its bottom line by earning $9.20 versus $6.43 in the prior year. This year, the market expects an improvement in earnings ($9.91 versus $9.20).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Computers & Peripherals industry average. The net income increased by 31.4% when compared to the same quarter one year prior, rising from $8,467.00 million to $11,124.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 25.6%. Since the same quarter one year prior, revenues rose by 22.3%. Growth in the company’s revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Computers & Peripherals industry and the overall market, APPLE INC’s return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.