Apple Stock Rises in After Hours Trading
Apple stock rises in after hours following a Q3 earnings beat
Apple (AAPL) stock rose in after hours trading on Thursday after it posted better than-expected earnings for the fiscal third quarter of its current fiscal year. The company increased its revenue to $83 billion, which beat analysts’ forecast of $82.7 billion. The company also announced a new Apple TV 4K streaming TV device. But the real buzz is about the company’s upcoming 5G iPhones. The stock has rallied more than 50% in the last 12 months, and Wall Street is optimistic about the longterm trajectory of the company’s shares.
The company’s iPhone business was largely flat in the June quarter, but Macs and iPads saw impressive sales gains. Apple said that its service business grew by 12% and that it could see additional upside from this segment in the future. However, the company warned that supply constraints could hurt sales for the holiday quarter. Investors are waiting to see what the company will say about its supply issues. Apple has warned that the supply of chips is being restricted in China, which would affect its sales. Apple’s Chief Financial Officer, Luca Maestri, told investors on a conference call that the company expects to see a slowdown in growth during the December quarter. But the firm’s iPhone sales are expected to remain resilient.
With the launch of its new high-end Apple Watch in June, the company is able to take advantage of growing consumer electronics demand. Apple’s margins are likely to benefit from higher average prices for iPhones, which are driving strong services revenues. The company’s margins will also be driven by a favorable foreign exchange environment. Nonetheless, Apple may need to adapt to the economic environment in the coming years, and investors have begun to focus on value stocks.
Apple’s trailing P/E of 30 times EPS is not too shabby, but its price-to-forward earnings ratio is well above historical levels. This suggests that investors are willing to pay more for a company that leads the 5G smartphone market. But the company’s margins will likely trend higher in the coming years, especially as the mix of its services revenues expands. That means Apple could outperform Wall Street’s expectations in the near term.
On the positive side, the company’s services segment is on track to reach $20 billion this fiscal year. That should help to offset declines in its product line. Additionally, the company is seeing double-digit growth in the number of Android users switching to its ecosystem. In order to continue its momentum, Apple needs to show continued growth in paid services. Moreover, the company has a large installed base of users in the upgrade window. If the company can successfully lock in these users, it will be in good shape to continue generating strong second-half performance. Those users will also likely be more apt to switch to the company’s iPhone ecosystem. As for the chip shortage, it’s likely that the issue will only have a transitory effect on Apple. But if it lingers, it could impact Apple’s overall revenue for the year.