The coronavirus is disrupting its supply chains, retail stores, and customer demand. Does its current share price reflect all the bad news?
The novel COVID-19 coronavirus outbreak has impacted the lives of billions of people. Cities, states, and countries have taken actions to try and limit its spread. The countermeasures have caused worldwide economic activity to slow significantly.
Apple (NASDAQ:AAPL) has seen its share price decrease roughly 25% from its high. Let’s consider if the drop makes this stock a bargain.
Major challenges still exist
The coronavirus started spreading in Wuhan, China. As a result, many manufacturers in and around the region shut down operations. The strict measures carried out appear to have slowed the spread in the area. There are now more new cases of coronavirus outside of China than inside.
Apple conducts a significant amount of product assembly in China, and the shutdowns hampered its production capabilities. Additionally, to reduce the spread of the virus, Apple temporarily closed its retail stores in China. A one-two punch of considerable proportions.
Now, for the same reason, it has closed all retail stores outside of China. The impact will result in Apple missing its quarterly revenue guidance and maybe worse.
Importantly, one of its major suppliers expects to resume normal production by the end of March, and Apple was able to reopen all retail locations in China.
A resilient portfolio of products and services
In a statement released on Feb. 17, the company said, “Apple is fundamentally strong, and this disruption to our business is only temporary.” Strong is an understatement here. Apple has over $200 billion in cash and marketable securities on its balance sheet, with roughly $93 billion in low-cost debt.
What’s more, the Cupertino, California, company has a portfolio of products and services that’s been delighting customers for decades. When the pandemic has run its course, its loyal customer base will almost certainly return with enthusiasm.
Apple’s AirPods Pro are absolutely on fire. Even before the coronavirus restricted supply chains, the wireless noise-canceling headphones were selling out of major retailers. The public well received the release of the new generation of iPhones last September. Its services segment, now with Apple TV+, Apple Card, Apple Arcade, Apple Music, and others, is growing double digits annually.
Finally, there are a couple of potential new products that are rumored to be in the pipeline. First is a 5G iPhone, which could spark a substantial increase in revenue. Then, a lower-cost phone, which will help Apple gain market share in emerging markets. The two would come at a time when smartphone owners around the world are in a prime upgrade window.
Doing the right thing
Apple was one of the first major retailers to close its brick-and-mortar stores to help slow the spread of the coronavirus while continuing to pay staff. Certainly, this decision will cause sales to decrease, while keeping expenses elevated.
Moreover, Apple will be allowing customers who are facing difficulties to miss their March Apple Card payment without incurring any penalties or interest charges. Undoubtedly, the public will appreciate the deferment as it is grappling with the consequences of a global pandemic.
Overall, faced with extremely challenging circumstances, Apple seems to be making all the right choices, saying all the right things, and taking all the right actions. These measures show it is cultivating long-term customer relationships, which is desirable for investors.
Built-up customer loyalty is one way a company can sustainably grow revenue at good profit margins.
What this means for investors
The next few months will surely be a challenging time. Instinctually, the reaction may be to put cash into extremely safe assets. However, these are precisely the type of scenarios that cause high-quality stocks to be selling at discount prices.
Long-term investors should be looking to buy shares of this tech stock. Admittedly, volatility will likely continue in the short run. Therefore, break up your desired allocation to several pieces and dollar-cost-average your way into this tech stock.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple. Read our full disclosure policy here.