What does a recession mean for Apple stock

Apple’s financial performance has been strong over the past two years, driven by increased demand for computing devices as the trend of remote work and learning has accelerated during the pandemic. For perspective, in fiscal year 21, Apple
AAPL
Revenue is up about 40% compared to 2019 levels, driven by higher iPhone and Mac sales and service sales. Apple’s profit margins also expanded significantly, with FY22 second-quarter gross margins of 43.7%, driven by a more favorable product portfolio, higher service sales, and increased volumes, up from about 38% in fiscal 2019. However, it feels Investors are concerned about whether the momentum will hold. The US economy may be headed into a recession, as the Federal Reserve raises interest rates at a more aggressive pace to tame rising inflation. The central bank just raised 0.75% last week, its highest level since 1994, and other similar hikes appear likely in the coming months. Consumer confidence is also on the decline, as higher energy, grocery and housing prices affect household budgets. Apple stock is already pricing in some economic pain, with the stock still down about 28% year-to-date.

So how will a potential recession hurt Apple? Demand for consumer electronics companies is being driven toward discretionary spending, which could decline if the economy takes a turn for the worse. Apple may see some pressure on its sales as people are likely to delay buying the company’s increasingly expensive products. Moreover, unlike the Great Recession of 2008 which the company weathered relatively easily as the iPhone had just been launched at that time, Apple’s primary smartphone market is becoming increasingly saturated, as the company relies on price increases and the impact of its own ecosystem to drive sales . However, there are two trends that could help Apple’s business perform better than its peers. Apple’s rapidly growing services business represents a greater mix of sales and profits and we expect this business to do well even in a recession. Wireless carriers are also likely to support iPhone sales, with discounts and promotions, as they look to lure more customers into their 5G networks. Moreover, economic indicators do not point to a very deep recession this time around, with household savings rising after the pandemic, and banks also remaining well capitalized.

We believe Apple stock is still a good value at the current market price of about $132 per share, trading at about 21 times forward earnings. This is well below the 31x multiplier seen in 2021 and 38x in 2020. Moreover, Apple’s robust balance sheet, with more than $190 billion in cash, as well as its stock buybacks, could enable better inventory holding than an index. Broader Nasdaq through recession. We have $179 per Apple valuation share, which is roughly 35% of the current market price. See our analysis at Apple ratingIs AAPL Stock Expensive or Cheap? For an overview of the factors that drive our Apple pricing estimates. See also our analysis of Apple Inc. revenue For more details on the company’s main revenue streams and how they have been trending.

Stock prices have fallen sharply across sectors in recent months, and we are now in a bear market for the first time since March 2020, when the Covid-19 outbreak caused the market to crash. We capture key trends in the Dow during and after major market crashes in our interactive dashboard analysis.”Market crash comparison“.

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