Slowing iPhone sales growth, concerns over China, and arguably pricey valuation metrics weren’t enough to stop Apple’s (AAPL) stock from soaring following its Q4 earnings results published last week.
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The Californian tech giant’s solid performance, particularly in its Services segment and positive market reception due to Apple’s AI strategy, drove the stock higher. However, tariff headwinds in China have since halted Apple’s bullish momentum. Although I’m a long-term Apple bull and recognize it as one of the companies with the strongest business fundamentals globally, I believe this is a moment to exercise caution with Apple stock.
There is a case to be made that the current tech rally is set for a correction and stocks like Apple could feel the worst of it, given its specific metrics.
In my view, there’s not enough to justify committing to a long position in Apple. The stock is trading at historically high valuations, growth isn’t exceptional, and headwinds are mounting. Until I see Apple demonstrating its ability to spark growth through new catalysts, I’m staying on the sidelines.
Overall, Apple’s consolidated results were solid, albeit uneventful, and left little room for investors to fault them. The Big Tech giant delivered another beat across the board, exceeding consensus EPS by 5 cents and revenues by $273 million, showing year-over-year growth of 10% and 3.9%, respectively.
On the top line, Apple reported total net sales increasing by $4.8 billion, with much of the solid revenue growth coming from the Services segment, which I see as great news for investors, considering that the segment is nearly twice as profitable as the Product segment.
On the bottom line, Apple’s gross profit margin jumped by $4 billion, which shows that the increase in top-line revenue has directly led to an increase in the company’s margins, as Apple has effectively managed costs in an increasingly complex environment for a company of its size.
Furthermore, when we look at EPS, Apple reported $2.40 in FYQ1, compared to $2.18 in the same period last year, showing increased profitability. Another essential factor is the company’s share repurchase program, with Apple spending $23.6 billion on quarterly buybacks. As the company buys back shares, EPS generally increases due to a smaller share count and higher earnings.
