Apple Loses Momentum, But iPhone Demand Remains Strong — Is the Stock a Buy? – The colorful fool | Hot Mobile Press

Apple (AAPL 0.36%) beat Wall Street expectations for the third quarter of fiscal 2022 (the three months ended June 25). Revenue was $82.96 billion (vs. $82.97 billion est., don’t worry if you’re fretted about a $10 million miss) and earnings per share were $1.20 Dollar (beating the $1.16 consensus among analysts).

Apple has been a bulwark this year. Stocks have rallied in recent months and are down just 13% so far in 2022 — not bad for a bear market. Other tech giants have said in recent weeks that consumer electronics (including smartphones) are poised for a major slowdown in the second half of this year. This seems to be affecting Apple in some areas as well, but the flagship iPhone segment is bucking the trend and holding up strong. Is Apple stock and its premium price a buy at this point?

Overcoming several headwinds in spring

First, let’s acknowledge that Apple’s overall results have been impressive given the issues it’s facing around the world. Supply chains are a mess (particularly in terms of chip shortages) and are limiting supplies of some devices.

A strong US dollar is also lowering the value of international earnings, Apple is no longer doing business in Russia and the ongoing COVID-19 lockdowns (like in Asia) are reducing household demand for consumer goods. Given all of that, the 2% year-over-year overall revenue increase isn’t anything to get too excited about. Earnings per share fell 7.7% year over year as profit margins took a small hit.

Apple acknowledged things could be better, echoing comments from other tech companies about weaker consumer demand for some product types and ongoing supply chain uncertainty impacting the ability to deliver a finished product when consumer demand is still strong is. iPad, Watch and Mac sales in the last quarter bear this out.

Apple product segment

Sales Q3 fiscal year 2022

YOY increase (decrease)

iPhone

$40.7 billion

2.8%

Mac

$7.38 billion

(10%)

iPad

$7.22 billion

(2%)

Wearables, home and accessories

$8.08 billion

(7.9%)

Services

$19.6 billion

12%

Data source: Apple. YOY = year over year.

However, the iPhone holds strong. In fact, just a day before Apple’s report, mobile chip giant Qualcomm (QCOM -4.54%) — a top supplier of Android phones — expects full-year smartphone shipments to now fall by a mid-single-digit percentage compared to 2021. As for Apple CEO Tim Cook and the company, there is no observable impact of a weak consumer on the iPhone. The upgrade to 5G-enabled phones isn’t the strong tailwind it was a year or two ago, but all indications are that global adoption of 5G iPhones is still going strong.

The iPhone in particular is doing well in emerging markets where Apple currently has very little presence. And while some device sales were weak last quarter, Apple reported that its total global user base increased, helping to fuel the continued expansion of its higher-margin “Services” business.

A slowdown may be permanent, but focus on the long-term

Overall, Q3 was a good one for Apple shareholders. The outlook for the final months of the company’s fiscal 2022 wasn’t particularly exciting, but it did contain some positive news. Cook and management see further headwinds from the strong US dollar versus foreign currencies. However, revenue is still expected to accelerate compared to the quarter just completed.

Gross margins could drop to 41.5% to 42.5% (vs. the 43.3% just reported), but that’s not the end of the world either. Apple sees value in its own stock, so it continues to buy back shares ($65 billion in the three months to June alone). This continued activity should help mitigate lower profit margins and the resulting pressure on earnings per share.

Following the report, Apple stock is trading for just under 24 times trailing 12-month free cash flow. It’s a quality stock, especially for a company that’s not growing much these days. But Apple is a well-oiled machine that can continue to produce solid financial results even in tough times. If you’re looking for fast-growing stocks, this one isn’t for you. But if you want consistent returns over time, Apple stock remains a great company to build a portfolio around.

Nicholas Rossolillo and his clients hold positions at Apple and Qualcomm. The Motley Fool has positions in and recommends Apple and Qualcomm. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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