In the last year, Apple (NASDAQ:AAPL) stock has more than doubled. Since the market capitalization of Apple stock is now $1.36 trillion, some on Wall Street are afraid that AAPL has become a bubble. However, I think that Apple can climb further in 2020. While some may take their profits from AAPL stock after its sustained rally, it is likely to keep trending higher.
AAPL stock currently has a price-earnings ratio of 26.2. Further, AAPL trades at 20.40 times analysts’ average FY21 earnings per share estimate. Clearly, from a P/E perspective, Apple still doesn’t look very expensive.
Additionally, AAPL reported operating cash flow of $69.40 billion, or $14.93 per share, for FY19. AAPL stock is therefore trading at 20.80 times the company’s cash flow.
I also believe that Apple is creating value for its shareholders through dividends and share repurchases. In FY19, AAPL repurchased $66.90 billion of its shares and paid out $14.10 billion of dividends. Because Apple’s cash flows are still strong, I expect its dividends to rise.
Therefore, AAPL is not in bubble territory, and any declines of AAPL stock due to profit taking can be viewed as buying opportunities.
Renewed Momentum in China
In FY19, nearly 17% of the company’s revenue came from Greater China. With China’s GDP growth staying around 6%, the nation is the company’s second most important market after the United States.
In December 2019, Apple’s iPhone shipments to Chinese customers jumped nearly 19% year-over-year to 3.2 million units, according to Bloomberg, which cited official Chinese data. The increase was driven by the release of iPhone 11. Apple is slated to report its Q1 earnings later this month, and I believe that its results are likely to be strong.
I also think that the company’s China sales should continue to climb at a healthy rate in 2020. One key reason for my optimism is the possible release of iPhone SE 2 by March 2020. It is rumored that the phone will cost only $399. The low price will likely result in strong demand, causing Apple’s sales growth to accelerate.
But the inexpensive iPhones probably won’t kill demand for the company’s premium phones. China accounted for 33% of the global luxury market in 2018, and that percentage will continue to grow. Given its rising living standards, China will become a bigger market for Apple’s more expensive products in the coming decade.
Finally, easing trade tensions will also boost Apple’s sales momentum in China. Reduced U.S.-China trade tensions can accelerate China’s GDP growth. And as consumer sentiment in China improves, the company’s Phone sales there can remain strong.
Switching to another emerging market, I want to add a quick word about India. Apple’s sales in that country have been relatively sluggish in the recent past. But if the iPhone SE 2 is launched in India in 2020, there may be strong demand for it in the country.
5G Can Boost Apple’s Sales in 2020
The launch of 5G will be another major growth catalyst for AAPL in 2020.
According to Wedbush analyst Dan Ives, 350 million iPhone could be ready for an upgrade to 5G. Dan Ives also believes that Apple can launch four 5G iPhones in 2020.
Loup Ventures’ managing partner, Gene Munster, said that “the first year of 5G for the iPhone will be a disappointment for investors.” However, Gene Munster does believe that 5G will be a “massive opportunity for Apple.”
Therefore, either in 2020 or subsequently, 5G will accelerate Apple’s growth, likely keeping investors interested in Apple stock.
The Bottom Line on AAPL Stock
After its huge rally of the last year, AAPL may take a breather. However, it’s likely to continue trending higher.
In 2020, iPhone 11 will continue to boost Apple’s growth momentum, and iPhone SE 2 will further increase its top line. In addition, 5G-enabled phones will trigger another wave of revenue gains, likely in the second half of 2020.
Overall, AAPL stock is worth considering for medium-to-long-term investors. Over the next 12-months, Apple will have enough positive catalysts to sustain the momentum of AAPL stock.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.