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1 Stock to Buy Hand Over Fist Before It Gets Too Late

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This top tech stock is in rally mode.

Time may be running out for investors who haven't taken advantage of the slide in Apple's (AAPL -0.54%) stock price in 2022 to buy more shares of the smartphone giant.

That's because the 16% rally in Apple stock over the past two weeks has inflated its valuation, and it is now trading at nearly 29 times earnings. The stock was available for 25 times earnings just two weeks ago.

AAPL data by YCharts.

However, it isn't too late for investors who have missed buying shares of Apple so far. That's because the stock is comparatively cheaper than last year when it was trading at nearly 32 times earnings. Of course, Apple is relatively expensive when compared to its five-year average earnings multiple of 23, but the stock looks like an enticing bet even after its latest rally thanks to its immense growth potential.

Let's look at a few reasons why investors should consider buying this tech stock hand over fist before it gets too late.

The latest iPhone cycle is going strong

Apple posted record revenue of $123.9 billion in the first quarter of fiscal 2022, up 11% over the prior-year period. The iPhone played a key role in this growth as the device accounted for 58% of Apple's top line during the quarter, with revenue from the product increasing 9% over the year-ago period to $71.6 billion for the three months ending on Dec. 25, 2021.

The good part is that the demand for the latest iPhone models remains strong in 2022. J.P. Morgan analyst Samik Chatterjee points out that the iPhone 13 models are in stronger demand as compared to earlier iPhone models. Daniel Ives of Wedbush Securities estimates that the stellar demand for the iPhone 13 has set Apple up for the successful launch of its next device later this year and could pave the way for a 'monster growth cycle' that may last for the next year and a half.

A closer look at Apple's installed base of iPhones will tell us just why sales of its smartphones are going to remain strong. Morgan Stanley analysts estimate that the iPhone has an installed base of 1.1 billion users. Strategy Analytics estimates that Apple sold 228 million smartphones last year, and 84% of them were 5G-enabled. So, Apple sold 191 million 5G smartphones last year. Now, Apple had sold an estimated 52 million 5G smartphones in the fourth quarter of 2020 which was the first quarter when the company had a 5G device on sale in the form of the iPhone 12 series.

This means that Apple has sold close to 250 million 5G iPhones so far, leaving a lot of room for growth in its smartphone shipments on the back of upgrades to 5G devices. Additionally, Apple is making smart moves to attract more users into its ecosystem as well as encouraging existing users to upgrade to a 5G device with the budget-friendly iPhone SE that was introduced earlier this month. The 5G-enabled iPhone SE could turn out to be a blockbuster device as far as sales are concerned thanks to its pricing and its ability to attract users from the Android ecosystem.

All of this indicates that the iPhone, which is Apple's largest source of revenue, is set for multiyear growth thanks to the growing adoption of 5G devices.

Apple could be working on a new strategy to boost sales

Bloomberg recently reported that Apple could be working on a subscription program for the iPhone and its other hardware products, with the service expected to see the light of the day by the end of this year or in 2023. The rumored hardware subscription plan could allow users to choose an Apple device based on their preferences for a monthly fee, along with the flexibility of upgrading to a new device.

Image source: Getty Images.

This hardware subscription strategy would be different from an installment plan that splits the cost of owning an iPhone or an iPad over a specific period. Though there is no official confirmation of such a plan, a hardware subscription strategy, if deployed, is expected to boost Apple's revenue by attracting more consumers who may find it difficult to pay the hefty upfront price when purchasing an iPhone, an iPad, or a Mac.

When you throw in the fact that Apple is reportedly working on autonomous cars and mixed reality headsets to tap into the metaverse, then it's easy to see why the company's earnings growth is expected to accelerate. Analysts expect Apple's earnings to grow at a faster annual rate of nearly 15% in the next five years as compared to the 8.4% annual earnings growth it has clocked in the past five.

As such, it won't be surprising to see Apple sustain its newly found momentum and remain a growth stock for a long time to come, which is why investors who have been staying on the sidelines should consider buying it before it is too late.

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