Apple is caught in market sales. Is it time to buy the Dip in stock?

Despite strong third-quarter results at the start of the month, Apple (NASDAQ:AAPL) was caught by the recent market sell-off. This tech-driven sell-off was accelerated by a small interest rate hike in Japan and the unwinding of the shipping deal.

Market corrections are inevitable and can open up good buying opportunities. Let’s look at Apple’s latest results to see if this is a stock investors should be looking for this market dip.

Service revenue growth continues to lead

After watching its revenue fall 4% in its fiscal second quarter, Apple managed to grow it 5% year-over-year to $85.8 billion for its fiscal third quarter, which ended on June 29. That beat analysts’ expectations for revenue of $84.50. billion.

Earnings per share rose 11% to $1.40, beating analysts’ consensus of $1.35.

Revenue for Apple’s services segment, which includes the App Store and Apple TV, rose 14 percent to $24.2 billion in the quarter. This segment has much higher gross margins than the products segment, and its gross profits rose 20% to $17.9 billion.

Meanwhile, product sales rose nearly 2 percent to $61.6 billion, while gross profits rose more than 1 percent to $21.8 billion.

iPhone sales fell about 1 percent to $39.3 billion, but came in slightly above the $38.8 billion in sales that analysts had forecast. The company also said that sales increased on a constant currency basis and that the installed iPhone user base reached “a new all-time high.”

Meanwhile, iPad sales saw a resurgence, climbing 24 percent to $7.2 billion on the back of the first new tablet launch since 2022. The company said about half of its iPad sales came from to new users. Sales of apparel, home devices and accessories — the segment that includes the Apple Watch and AirPods — rose 2 percent to $8.1 billion, while Mac sales rose 2 percent, up to 7 billion dollars. About two-thirds of Apple Watch buyers and about half of MacBook Air buyers had never bought those items before.

Check out some numbers from the most recent quarter in the table below.

Data source: Apple.

Mainland China continued to be a weak point, with Apple’s revenue in the country falling by around 6.5%. However, the company said its iPhone installed base hit a record high as it saw a record number of users upgrade their iPhones in June.

The story continues

Looking ahead, Apple estimated that its fiscal fourth-quarter revenue would grow similar to the 5 percent in fiscal third quarter. It also expects double-digit growth in service revenue, as in the previous three quarters.

Is now the time to buy Apple stock?

Apple’s services business continues to shine with steady revenue growth in the teens. While iPhone sales remain weak, the company has been able to grow profits nicely thanks to the high-margin nature of its service offerings.

Meanwhile, the nice increase in iPad sales shows the impact a big product update could have on the rest of its hardware business, including iPhone sales. As Apple continues to make strides in artificial intelligence (AI) with its Apple Intelligence offering, the introduction of a more substantial AI-powered iPhone upgrade could certainly help fuel hardware sales. Over the past few years, the upgrade cycle has slowed as smartphone upgrades have been more incremental, and investors are eagerly awaiting something to reverse that trend.

From a valuation perspective, Apple stock is trading at a forward price-to-earnings (P/E) ratio of just over 28, based on analysts’ estimates for fiscal 2025. Before COVID brought the economy to a standstill, the stock traded broadly at a much lower P/E.

While Apple’s outlook is on the rise due to the upgrade potential of the iPhone combined with the strength of its services business, the stock’s valuation remains high after the increase in the P/E multiple without a corresponding jump in growth. If the stock’s valuation were to re-rate to pre-Covid P/E multiples, there would be a lot of price downside to current levels.

Given the sudden market turmoil combined with its current valuation, I would wait for more of a pullback in Apple stock before looking to buy or add to the stock. Currently, there are more attractively valued stocks among the so-called “Magnificent Seven” stocks to consider buying ahead of Apple. Meanwhile, even longtime Apple shareholder Warren Buffett cut his large Apple stake nearly in half, taking some nice profits in the process.

Should you invest $1,000 in Apple right now?

Before buying Apple stock, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now…and Apple wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $641,864!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns starting August 6, 2024

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

Apple is caught in market sales. Is it time to buy the Dip in stock? was originally published by The Motley Fool