Apple Stock Below $170: Time to Buy?

Apple (NASDAQ: AAPL) stock continued its downward slide last week, declining about 2%. This brings the stock's total pullback since Oct. 1 to 27%. The tumbling stock price may have opportunistic investors wondering: Is it time to pounce and buy some shares?

While there are some good reasons for the recent pressure on Apple stock, a 27% decline may have gone too far.

What's weighing on Apple stock

Apple stock's beating started with a broader market sell-off of tech stocks in October. But company-specific news has contributed to its decline, as well.

Shares took a hit on Nov. 2 following the company's fiscal fourth-quarter earnings release. The stock fell about 5% as investors digested the company's weaker-than-expected revenue guidance for its current quarter. In addition, some investors may have been concerned about management's decision to no longer report unit sales beginning with its first quarter of fiscal 2019. This may indicate management expects headwinds for its unit sales, sparking speculation that the company's newest iPhones aren't performing as well as expected.

Following this earnings release, rumors of production cuts for Apple's new iPhones and downward iPhone unit sales-estimate revisions from analysts have only worsened sentiment toward the tech giant. Pessimism has continued even as recently as last week, with TF International Securities Analyst Ming-Chi Kuo notably slashing his first-quarter iPhone shipment estimate by 20%.

The long view

Given that the iPhone accounts for over 60% of Apple's revenue, it makes sense that investors are concerned about what looks like lower unit sales than in the year-ago quarter -- a trend that may be indicative of how the rest of the fiscal year could play out. But Apple stock still looks compelling today, despite headwinds in the company's largest segment.

The stock's attractiveness boils down to valuation. Thanks to the stock's decline, Apple now has a price-to-earnings (P/E) ratio of less than 14. For some context, the average stock in the S&P 500 has a P/E of 21. With a valuation this conservative, Apple stock could get away with low, single-digit revenue growth over the next five years and still have a good chance of rewarding shareholders with solid returns.

Apple's momentum with prices and its fast-growing services business both look poised to help the tech giant grow its revenue. Highlighting Apple's strong pricing power with its customers, the average selling price of iPhones in the most recent quarter increased 28% year over year, to $793. Showing how much of a difference this makes, iPhone revenue was up 29% year over year during the period despite flat unit sales growth.

Then there's Apple's services business, which saw revenue increase 24% year over year in fiscal 2018. As the company's second-largest segment, services will likely contribute meaningfully to Apple's growth in fiscal 2019.

Sure, Apple could see revenue declines in the near term. But Apple's strong pricing power, evidenced by the iPhone's recent big jump in average selling prices, shows how important Apple products remain to customers.

In addition, momentum in services highlights a promising long-term opportunity for Apple to continue monetizing its large base of users across its installed base of products. Over the long term, therefore, Apple looks poised to keep growing steadily, justifying its conservative valuation -- and making Apple stock look like a buy below $170.

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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 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.