The gap between Apple’s operating results and valuation is getting bigger. Is this, therefore, a perfect moment to purchase its stock?
It’s challenging to find a technological business operating at a high level in the market nowadays, but Apple (NASDAQ:AAPL) is still one of the few. The iPhone manufacturer, which accounts for 40% of Berkshire Hathaway’s (BRK.A 1.74%) (BRK.B 1.75%) investment portfolio, has performed better financially despite losing 16.7% of its value since the year’s beginning.
For astute investors, this has presented a rare opportunity to buy. At least, this is what Berkshire Hathaway CEO Warren Buffett appears to believe. In the first quarter of 2022, the “Oracle of Omaha’s” business invested $600 million in Apple (NASDAQ:AAPL) stock. If the store keeps falling in the ensuing trading sessions, I wouldn’t be surprised to see the pro stock picker buy more shares. Should investors follow Buffett’s lead and buy Apple (NASDAQ:AAPL) stock now?
Apple’s business is doing well
During the second quarter of 2022, Apple (NASDAQ:AAPL) had a solid performance, growing it is top and bottom lines by 8.6 % year over year, reaching $97.3 billion and $1.52 per share, respectively. Despite several macroeconomic headwinds, profitability maintained well; its gross margin improved by 124 basis points to close at 43.7 %, while its operating margin rose by 12 basis points to conclude at 30.8 %.
But Apple’s better balance sheet and cash flow generation are the main reasons to consider investing right now, and I believe Buffett would agree. The corporation had $28.1 billion in cash and cash equivalents as of its most recent quarter. Furthermore, the maker of the iPhone has continued to create some money at a blistering rate, generating $105.8 billion in free cash flow (FCF) over the previous 12 months. Having a large cash reserve gives a company financial flexibility, which enables it to engage in expansion while protecting itself from downturns in the economy.
On Thursday, July 28, Apple (NASDAQ:AAPL) is expected to release financial results for its most recent quarter. Wall Street analysts anticipate that the tech giant will only raise its top line by 1.4 % annually to $82.6 billion. Its earnings per share will decline by 10.8 % to $1.16. But for the entire year, the Street expects the company’s top and bottom lines to grow by 7.6% and 9.3%, respectively.
For a company the size of Apple, those growth rates are impressive; the company’s valuation is also beginning to look very alluring. Its price-to-earnings multiple, currently 24.6, is getting closer to the median over the last five years of 23.1. Investors should often take a look once a top stock is getting close to its historical valuation.
Warren Buffet’s Love for Apple
According to Buffett, stock investing can be effective without thoroughly understanding modern portfolio theory and obscure investment formulas. He even asserts that it would probably be best for you to remain ignorant of all of that.
Buffett wrote in one of his annual shareholder letters many years ago saying one’s goal as an investor should basically be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher 5, 10, and 20 years from now.
Simply put, invest in promising companies at fair pricing, and stay with them for a long time. That outlook contributes to understanding Buffett’s intense affection for Apple (AAPL 3.42 %).
Should investors follow Warren Buffett’s lead?
In the current market climate, Apple is a sure bet. It is far safer than other technology equities due to its consistent financial performance, superior balance sheet, and declining value. Warren Buffett’s genuine investment in the stock is undoubtedly due largely to the company’s ability to build an empire that has produced a wide moat and a wonderfully resilient business model. Even if it’s crucial to conduct your study, it wouldn’t be foolish to follow Buffett’s example and buy shares of the technology giant right now.
Featured Image: Megapixl @Lester69