InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Apple Inc. (NASDAQ: AAPL ) is a company that often has Wall Street divided. But should value investors consider AAPL stock a good buy here, or a value trap?
Value investing is easily one of the most popular ways to find great stocks in any market environment, so its natural AAPL stock investors want to apply this strategy. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
But there's no guarantee that Apple Inc. fits the bill here. Often a trade like AAPL stock seems like a bargain, but keeps going lower anyway.
One way to find true value buys is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put AAPL stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
Apple Stock Price to Earnings Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Apple Inc. has a trailing twelve months PE ratio of 14.44, as you can see in the chart below:
This level for AAPL stock actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.18. If we focus on the stock's long-term PE trend, the current level puts Apple's current PE ratio marginally above its midpoint (which is 14.32) over the past three years.
Further, the stock's PE also compares favorably with the Zacks classified Computer - Mini Computers industry's trailing twelve months PE ratio, which stands at 16.50. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Apple has a forward PE ratio (price relative to this year's earnings) of 16.11, so it is fair to expect an increase in the company's share price in the near future.
AAPL Stock Price to Sales Ratio
Another key metric for AAPL stock to note is the price to sales ratio. This approach compares a given Apple Inc. share price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Apple has a P/S ratio of about 2.95. This is somewhat lower than the S&P 500 average, which comes in at 3.13 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading-at least compared to historical norms.
Apple Inc. Broad Value Outlook
In aggregate, AAPL stock currently has a Zacks Value Style Score of 'B', putting it into the top 40% of all stocks we cover from this look. This makes AAPL a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Apple is just 1.59, a level that is considerably lower than the industry average of 3.75. The PEG ratio is a modified PE ratio that takes into account the stock's earnings growth rate. Clearly, AAPL is a solid choice on the value front from multiple angles.
Though Apple Inc. might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of 'C' and a Momentum score of 'D'. This gives AAPL a Zacks VGM score-or its overarching fundamental grade-of 'C'.
Meanwhile, the company's recent earnings estimates have been mixed at best. The full-year 2017 has seen six estimates go higher in the past sixty days and six lower, while the full-year 2018 estimate has seen eight upward and two downward revisions in the same time period.
This has had a mixed impact on the consensus estimate, as the full-year 2017 consensus estimate has dipped 0.1% in the past two months, while the full-year 2018 estimate has risen by about 2.1%.
Bottom Line - Apple Stock is a Good Value
Apple is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 12% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Computer - Mini Computers sector has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn favorable in this name first, but once that happen, this stock could be a compelling pick.
The post AAPL Stock Update - Is Apple Inc. a Value Buy or Value Trap? appeared first on InvestorPlace .