Why Apple, Inc. Stock Gained 11% in 2016

By Daniel Sparks Markets Fool.com

What happened

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Apple (NASDAQ: AAPL) finished 2016 strong, gaining about 5.8%. The nice increase toward the end of the year helped the stock clock a 10.9% rise during the year, according to data provided by S&P Global Market Intelligence. While the increase is notable, investors should put the move into perspective by considering that the S&P 500 increased by about the same amount during this period.

Image source: Apple.

So what

Apple's gain for the year didn't come without some volatility. In May, the stock had fallen about 12.5% as investors considered the implications of the company's falling revenue and earnings per share. Concern particularly mounted after Apple reported its fiscal second-quarter results in April, highlighting a 13% year-over-year decline in revenue and an 18% year-over-year decline in earnings per share. Investors also questioned the company's ability to grow revenue and EPS from current levels.

But as the year went on, signs that Apple's iPhone 7 launch may be faring well, optimism about the company's 2017 iPhone launch, and Samsung's Note 7 recall all gave investors reasons to be more optimistic -- not to mention Apple's conservative stock price, which arguably already prices in business growth headwinds.

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Now what

Going into 2017, the best thing Apple stock has going for it is its valuation. The stock trades with a price-to-earnings ratio of just 14. This compares to the average 25 P/E of stocks in the S&P 500. While it's impossible to speculate where the stock will go in 2017, Apple stock looks compelling with a valuation like this.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.