Apple's (AAPL, Financials) price-to-earnings ratio falling below 25 typically marks a positive risk-reward setup over the next several months, according to a research note from Bank of America. The firm pointed to historical trends showing that Apple's stock has delivered gains of 7% in three months, 8% in six months, 14% in nine months, and 17% in 12 months following similar valuation levels.
Maintaining a Buy rating on the company and a $250 price target, Bank of America analyst Wamsi Mohan said the latest selloff presents a possible entry chance for long-term investors. Year to date, Apple shares are down 25% and are 23.5% since its last earnings release, lagging the S&P 500, which has dropped 13.7% and 16.6% during the same time frame.
Though he admitted the possibility of near-term loss, Mohan said Apple's value reduction has always produced good returns. Apple's share price fell between 5% and 11% in the next three months during comparable events between April and August 2022. Those times, meanwhile, also showed upside potential from 11% to 26%.
Apple's latest stock price drop occurs against more general global uncertainty, especially about tariff concerns and artificial intelligence capabilities like a customized Siri. Mohan warned that the possibility of relations with China to increase might harm profit projections.
Mohan said, nonetheless, that Apple had several levers to control negative risk. These include : changing the schedule of new product launches, obtaining better supplier conditions, moving more iPhone manufacturing to India, raising product and service costs, and launching premium items.
