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Here’s How Apple Inc. Became A Growth Story Once Again

From Bob Ciura: Apple Inc. (NASDAQ:AAPL) stock popped 6% after the company’s better-than-expected quarterly earnings results. And with that, the Apple growth story has returned.

Apple had a sluggish performance in 2016 due to slumping iPhone sales, but Apple growth is back. Not only have iPhone sales recovered, but the company is seeing record growth in services.

Going forward, there could be further room for Apple stock to keep climbing as Apple growth continues. Apple stock rallied on its earnings report, and the rally may not be over just yet.

Apple Beats on Both Lines

For the first fiscal quarter, Apple earned $3.36 per share on revenue of $78.4 billion. Both the top and bottom lines exceeded expectations. Analysts were looking for Apple to earn $3.21 on revenue of $77.25 billion.

Apple hit all-time records for both quarterly revenue and earnings per share. On a year over year basis, the company grew revenue and earnings-per-share by 3% and 2%, respectively.

Apple saw broad-based growth, across its product lineup. For example, last quarter Apple reached all-time revenue records for its iPhone, Services, Mac, and Apple Watch businesses.

The iPhone was once again a major source of strength for Apple last quarter. Apple sold more than 78 million iPhones, above estimates for 77 million devices sold. And, average selling price of the iPhone increased 12%, to $695 in the December quarter from $619 in the September quarter.

The iPhone by itself makes up more than half of Apple’s total sales. The iPhone 7 Plus, which carry higher prices, led the way last quarter. iPhone revenue increased 5% from the same quarter last year.

Separately, Apple posted record sales of the Apple Watch, and the services business generated more than $7 billion in revenue last quarter. Services revenue increased 18% year over year.

Apple is a cash machine. The company generated $23.7 billion of free cash flow last quarter alone.

All this cash flow has piled up on the balance sheet. Apple ended the quarter with $246.1 billion in cash and marketable securities, an $8.5 billion increase from the previous quarter.

Such huge amounts of cash allow the company to return billions to investors each quarter, through stock buybacks and dividends. Apple returned nearly $15 billion to investors last quarter alone.

Apple Growth: New Markets Are Catalyst

Apple is breaking ground in new geographic markets, which should be a compelling growth catalyst moving forward.

The company has built a huge business in China, a key emerging market, and it is in the beginning stages of planting its flag in another major emerging market—India.

Apple currently has a market share of just 3% in India. But this stands to change. Last year, Apple rolled out the iPhone SE, a lower-priced device specifically meant to compete more effectively in India, where consumers are more price-conscious.

India holds a great deal of potential. It has a population of 1 billion, a rising middle class, and an economy growing at high rates.

Both China and India are major drivers for Apple—Mac and iPad revenue both increased at a double-digit rate in each country last quarter.

Apple will leverage its growth in new markets through its own retail stores. Apple growth in its retail business was at t he double-digit level for visitors and revenue last quarter. In 2017, the company plans to open its first store in Singapore, and its second store in Dubai.

Valuation Remains Attractive

Even after the post-earnings rally, Apple stock is still attractively priced. The stock trades for a P/E of 15. The S&P 500 has an average P/E of 26, meaning Apple stock trades for a significant discount to the broader index.

If its future Apple growth accelerates, it could easily warrant a higher valuation multiple for the stock. Apple also pays a 2% dividend, which is an added boost to total returns.

The Apple Inc. (NASDAQ:AAPL) was trading at $133.60 per share on Monday morning, up $1.48 (+1.12%). Year-to-date, AAPL has gained 15.35%, versus a 4.00% rise in the benchmark S&P 500 index during the same period.

This article is brought to you courtesy of Wyatt Investment Research.

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