Tech giant Apple (AAPL) has released its first-quarter earnings, revealing record-high services revenue. However, concerns arise from shortcomings in its wearables segments and delayed entry into the generative AI space. Let's analyze AAPL's recent performance, assess key fundamentals, and decide whether to buy or wait on the stock...

Tech behemoth Apple Inc. (AAPL) released its second-quarter earnings on April 30, 2024. Despite AAPL's efforts, its second-quarter results revealed a decline in sales, particularly in Greater China and iPhone revenue. However, the company managed to surpass analyst estimates for its EPS and revenue.

In this article, I will explore the reasons why waiting for a more favorable entry point for AAPL could be a wise move.

Despite boasting an all-time high in services revenue, AAPL’s other segments such as wearables fell short of expectations in the first quarter (ended March 30, 2024). Moreover, despite significant investments and collaborations with industry players, AAPL’s late entry into the generative AI space leaves it playing catch-up.

Moreover, AAPL's sales declined in China despite discounts, reflecting a shift in consumer perception towards rival brands like Huawei, which offer advanced AI functions lacking in iPhones.

On the bright side, AAPL recently increased its dividend by 4% to 25 cents a share, which aligns with expectations. The company also announced a $110 billion share buyback program, breaking its own U.S. record set in 2018 with a $100 billion authorization.

While the stock declined 10.1% year-to-date, it has surged 2.5% over the past month, closing the last trading session at $173.03.

Looking forward, AAPL's trajectory hinges on the following fundamentals:

Bleak Financials

During the fiscal 2024 second quarter that ended March 30, 2024, AAPL’s total net sales decreased 4.3% year-over-year to $90.75 billion. The company’s total operating expenses rose 5.2% from the prior year’s period to $14.37 billion. Its net income and EPS declined 2.2% and marginally year-over-year to $23.64 billion and $1.53.

High Profitability

AAPL’s trailing-12-month EBIT and EBITDA margins of 30.76% and 33.73% are 590.9% and 259.4% higher than the industry average of 4.45% and 9.39%. Moreover, the company’s trailing-12-month levered FCF margin of 22.44% is 134.3% higher than the 9.58% industry average.

Stretched Valuation

In terms of forward P/S, AAPL is trading at 6.91x, 156.4% higher than the industry average of 2.70x. Its forward EV/Sales and EV/EBITDA of 6.74x and 19.77x are 144.6% and 36.8% higher than the respective industry averages of 2.92x and 15.03x.  Furthermore, the stock’s forward Price/Book of 37.07x compares with the industry average of 3.79x.

POWR Ratings Exhibit Uncertain Prospects

AAPL’s outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different 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 C grade for Stability, in sync with its 24-month beta of 1.19. Its C grade in Momentum is justified by its fluctuating price performance over the past couple of months.

AAPL is ranked #22 out of 37 within the B-rated Technology – Hardware industry.

Click here to access AAPL’s Growth, Value, Quality, and Sentiment ratings.

Bottom Line

The decline in iPhone sales in China, coupled with fierce competition from Huawei, challenges Apple's market dominance. As AAPL navigates these obstacles, doubts linger about its future growth prospects.

Furthermore, given its high beta and valuation metrics, exercising caution seems prudent. While the stock holds promise for the long term, current volatilities suggest waiting for a more favorable opportunity to enter the stock.

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

While AAPL has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) rated stocks within the A-rated Technology – Hardware industry: AstroNova, Inc. (ALOT), Vtech Holdings Limited (VTKLY), and Seiko Epson Corporation (SEKEY).

To explore more Technology – Hardware stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

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AAPL shares rose $12.26 (+7.09%) in premarket trading Friday. Year-to-date, AAPL has declined -3.63%, versus a 7.75% rise in the benchmark S&P 500 index during the same period.

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About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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