Should Value Investors Consider Apple (AAPL) Stock Now?

Value investing is easily one of the most popular ways to find great stocks in any market environment. 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?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Apple Inc. 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:

PE 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 has a trailing twelve months PE ratio of approximately 18.0, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.9. While Apple’s current PE level puts it above its midpoint of 14.4 over the past five years, it stands below the highs for the stock – thus leaving scope for entry still.
 

Further, the stock’s PE also compares favorably with the Zacks Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.3. 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 just 16.3, so it is fair to say that a slightly more value-oriented path may be ahead for Apple stock in the near term too.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Apple’s PEG ratio stands at 1.3, compared with the Zacks Computer-Mini industry average of 1.4. This suggests an almost in-line trading relative to its earnings growth potential right now.

Broad Value Outlook

In aggregate, Apple currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Apple a solid choice for value investors.

What About the Stock Overall?

Though Apple 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 Score of B and a Momentum Score of C. This gives AAPL a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen five estimates go higher in the past 30 days compared to one downward revision, while the full year estimate has seen seven upward and one downward revision in the same time period.

This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 3.4% in the past month, while the full year estimate has inched higher by 1.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Apple Inc. Price and Consensus
 

Apple Inc. Price and Consensus | Apple Inc. Quote

However, this somewhat bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the bullish analyst sentiment indicates that the stock’s overall prospects look good for the near future.

Bottom Line

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 19% out of more than 250 Zacks industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. Despite the disappointing rank, the industry has shown solid momentum in the past couple of years and has outperformed the broader market by a wide margin, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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