Is Apple Stock A Buy Near Historic Low Valuations?

  • Apple stock is currently trading close to its lowest ever valuation multiples.
  • Apple stock has marginally underperformed the NASDAQ in the year-to-date.
  • Is it time to buy Apple stock now?

The strong performance of the iPhone 6 propelled Apple (NASDAQ:AAPL) stock price to newer highs in early 2015. The same strong performance could now prove be a thorn in Cupertino's sides, setting up really tough comps for the tech giant to overcome in its FY 2016. Rising concerns on the ability of Apple to beat the strong iPhone performance in the year ago holiday quarter has lead Apple stock price to fall back to its current $120 levels.

AAPL stock chart

Source: Apple stock price by

The iPhone 6 successor, iPhone 6S was off to a strong start, as noted in our earlier post. However, China included in the launch market was a major difference between the two launches. Beating the holiday quarter record of 74.5 million iPhone unit sales could prove to be a feat too hard to achieve, which would equate to a iPhone unit sales growth of 55% QoQ. The fact that the iPhone segment made up over 66% of Apple revenue in the just concluded FY 2015 just amplifies the need for Apple to do well in this segment.

Apple Q1 2016 iPhone Estimates

The wall street consensus for iPhone unit sales is currently at 77.79 million units.

Apple iPhone unit sales Dec 2015

Source: Fortune

However, it is worth noting that Ming-Chi Kuo, a reputed Apple analyst with KGI securities, puts the iPhone unit sales between 70-75 million units for the holiday quarter. On the other hand, Gene Munster from Piper Jaffray expects the iPhone sales to grow by 2% YoY, implying holiday quarter sales of 75.96 million units. Given the wide range of estimates, it is safe to expect iPhone sales to remain flattish or show marginal growth in the quarter.

Potential outcomes post Q1 2016 Apple earnings

Given the iPhone concerns which have pulled back Apple stock off its highs, a beat on the street's estimates could catapult the stock higher. A larger miss, on the other hand could lead the stock further lower, though the downside could be limited given the recent pullback in Apple stock price.

Apple Stock Trading At Historic low valuations

Worried investors have pushed the Apple stock into a territory it hasn't been found in far too often. Trading at a PE ratio of 12.83, the stock is trading at a significant discount to its 5 year average PE ratio of around 15.

AAPL PE ratio chart

Source: Apple PE ratio chart by

To put things into perspective, Apple generated a free cash flow of $70B in FY 2015 (September end). The stock currently has a market cap of $663.6B (Dec 7 close), giving the stock a P/CF of 9.5, which is a 50% discount to the S&P 500 P/CF multiple of 18. Add to this the company's strong balance sheet (over $200B in cash and $53B in Debt), huge profitability and a growing EPS, and its easy to understand why the stock is a clear opportunity at the current price levels.


Apple stock is trading at a significant discount to its 5 year average valuations as well as the broader market, having been pulled down on concerns surrounding its iPhone segment. However, the stock offers an attractive opportunity to long term investors, given the strong fundamentals of the company. The iPhone numbers miss, if at all it occurs, will only be a minor blip in the long term performance of this scrip.

Apprehensive investors should take a long position in Apple stock before the valuations begin to catch up with the broader market, and scale into the position incase of a post earnings dip on account of a miss in the holiday quarter. The Apple growth story remains intact, driven by strong brand loyalty, apart from growth levers in the form of revisions to the iPhone and also the Apple Watch.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and AAPL stock

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Great point and Namaste.

But unfortunately Apple's p/e is headed toward 6. This is due to it becoming a hardware company. If Cook can grow EPS by doing massive buybacks then he can hope to keep the stock from dropping to below 60.

Once Apple is at 60 you will see a stock paying a nice dividend and generating cash with buybacks. At that point we could see share price grow but only offsetting losing market share and multiple compression.
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