Is Apple Stock a Bad-News Buy?

Shares of tech and consumer giant Apple (NASDAQ: AAPL) are down around 20% this year. That's not the type of performance investors would normally expect to see from the stock, unless there was a wide-scale sell-off in the tech sector.

That's not the case this year. Instead, the stock has been underperforming the market and it hasn't been giving investors a reason to be optimistic about a turnaround taking place anytime soon.

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But despite all the negativity surrounding the stock, this is still Apple -- one of the strongest, most iconic, and most recognizable brands in the world. If it's crashing, should you consider loading up on the stock?

Image source: Getty Images.

What's taking a bite out of Apple's valuation?

There are, unfortunately, no shortage of headwinds facing Apple's business right now. The biggest one is arguably the slow rollout of its artificial intelligence (AI) features for its iPhones. Apple has pushed back on the release of some of its more advanced AI features until next year. It's a problematic situation given that its rivals already have AI-powered phones available on the market. Apple is focusing on privacy and keeping data secure, which is an increasingly important topic when it comes to AI. But investors still aren't impressed.

Another problem is that Apple faces a lot of exposure to tariffs as it makes the vast majority of its products in China. The company is working on shifting production for iPhones that it sells in the U.S. to India, but it could take until the end of next year before capacity is ramped up sufficiently to accommodate U.S. demand and to minimize its Chinese exposure.

But the uncertainty around tariffs is a big question mark as tariff rates have changed significantly this year. Investors are finding it easier to simply sell Apple's stock than to worry about all these factors.

Has the stock become a cheap buy?

Apple is still around a $3 trillion market cap despite its poor start this year. But with a lower valuation, it's trading at 31 times its trailing earnings, which is now only slightly above its five-year average.

AAPL PE Ratio data by YCharts

While the sell-off may seem steep for one of the most valuable companies in the world, Apple would need to decline another 15% before getting near its 52-week low of $169.21.

Paying 31 times earnings may be acceptable for a growth stock, but Apple's latest numbers weren't all that impressive. During the first three months of the year, the company's iPhone sales increased by just under 2% to $46.8 billion. Demand in the future may not get a whole lot stronger, either, especially if consumers become more price conscious due to concerns about a slowdown in the economy and need to tighten up their household budgets.

Should you buy Apple's stock?

Apple's business is still doing well as it posted a profit of $24.8 billion last quarter. But the problem is that at its current valuation, you would still be paying a high multiple for a business that's growing in just single digits. And with a possible slowdown looming, that makes it even harder to justify buying Apple's stock right now.

This can still be a good long-term buy but I wouldn't consider buying shares of Apple unless it were to fall further in value. Due to its poor AI deployment and slow growth, investors should demand more of a discount for the stock as the business is facing a lot of uncertainty. While Apple isn't necessarily a bad investment over the long haul, there are better growth stocks to consider right now.

Should you invest $1,000 in Apple right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.