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How Smart Investors Should React to Apple Earnings

After going on an absolute tear from the March 2020 pandemic lows through the end of 2021, technology stocks have changed course of late. Year to date, the Nasdaq Composite has cratered 21% in light of doggedly high inflation and aggressive monetary policy by the Federal Reserve. Some of big tech’s finest companies, like Meta Platforms and Netflix, have experienced never-seen-before struggles in recent periods. Apple (NASDAQ: AAPL) posted third-quarter earnings on July 28 after market close, a highly anticipated moment for investors eager to see how the world-renowned tech firm held up in a dwindling economy.

Let’s consider Apple’s latest financial performance and what it means for investors.

Image source: Getty Images.

Dissecting Apple’s latest financial performance

Apple did it again in its third-quarter outing — total sales inched upward 1.9% year over year to $83 billion, finishing on par with analysts’ expectations, and its diluted earnings per share of $1.20 beat estimates by 3.9%. Its products segment slightly contracted 0.9% to end at $63.4 billion, whereas its services category carried the weight, expanding 12.1% to $19.6 billion. Apple’s products segment is split into iPhone, Mac, iPad, and Wearables, Home and Accessories, and its services segment is composed of Advertising, Cloud Services, Digital Content (i.e. the App Store, Apple Music, Apple TV+), and Payment Services (i.e. Apple Card and Apple Pay).

Likewise, the company’s margins remained largely intact from a year ago, with its gross margin staying constant at 43.3% and its operating margin dropping 181 basis points to 27.8%.

The company also generated $23 billion in operating cash flow during the quarter and now has a cash and cash equivalents position of $27.5 billion. The iPhone maker didn’t post what many would consider jaw-dropping results, but what the tech juggernaut was able to accomplish in the current economic environment was quite impressive, in my opinion. Down 13.6% year to date, Apple pegs a price-to-earnings multiple of 25.5, approaching its five-year average of 23.1. I don’t know about you, but I think a world-leading tech company that is hovering around its historical average valuation presents an interesting case for long-term investors.

For the full fiscal year, Wall Street analysts anticipate that Apple will generate $393.5 billion in revenues, translating to 7.6% growth year over year, and its diluted earnings per share to ascend 9.3% to $6.13. Again, in a market environment where most of the technology sector is being pressed by runaway inflation and repeated interest rate hikes, those are sturdy growth rates. But above growth, Apple’s one-of-a-kind economic moat, marvelous balance sheet, and unrivaled cash-flow generation make it a no-sweat investment at this time.  

It’s time to pounce on Apple stock

A technology company that has demonstrated resiliency in today’s market environment is a rare feat, but Apple has managed to do just that. The iPhone maker may not be growing at the level it once did, but upside is still present, plus you’re getting a company that is as consistent as they come. Its fresh pullback that is largely due to broader macro conditions has presented investors with a nice window of opportunity to purchase shares of the stock. In my view, Apple is a great investment right now, especially given the downward trend of the global economy.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Luke Meindl has positions in Apple. The Motley Fool has positions in and recommends Apple, Meta Platforms, Inc., and Netflix. The Motley Fool recommends Nasdaq and 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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