After a brutal sell-off that wiped out a fifth of Apple Inc.'s AAPL market value in less than a week, one of Wall Street's most prominent banks believes history is flashing a strong buy signal for the tech titan and historical data suggests they might be right.

In a note shared Tuesday, Bank of America analyst Wamsi Mohan said Apple's risk-reward profile is now skewing favorably for long-term investors, thanks to a rare compression in the stock's valuation multiple that has previously signaled strong future returns.

Valuation Compression Signals Opportunity For AAPL Shares

Apple shares are down 25.5% year to date and have fallen 23.5% since their last earnings report, underperforming the S&P 500 index, which declined 13.7% and 16.6% in the same respective periods.

Since President Donald Trump’s tariffs took affect on April 2, the iPhone maker lost 17%, more than double the decline suffered by the S&P 500 index.

Geopolitical tensions around U.S.-China tariffs and delays in rolling out Apple Intelligence features on Siri have contributed to the decline.

Yet, Mohan said Apple's current forward price-to-earnings (P/E) ratio of about 21 times marks a key inflection point.

“We view AAPL’s current c.21x PE as an enhanced buying opportunity,” he said, referencing historical data that suggests Apple typically performs well after similar valuation dips.

The forward P/E ratio reflects investor expectations of a company's earnings growth. When the ratio drops below 25 times, as it has now, Apple's stock has historically delivered compelling returns in the months that follow.

What Happens When Apple's P/E Falls Below 25?

Apple’s stock has historically delivered solid returns in the months following a forward P/E compression below 25x, as Bank of America analysis shows.

On average, shares rose 7% after three months, 8% after six months, 14% after nine months, and 17% after 12 months.

After the March 2024 P/E compression, Apple shares surged 36% in 12 months.

The October 2023 instance yielded a 34% return over the same period. In contrast, downside risk remained relatively muted, with worst-case three-month declines of 5% to 11%.

Only once did Apple shares continue to decline 12 months after the forward P/E ratio dropped below 25x — following the April 22, 2022 event, when the stock fell 12% over the subsequent year.

Date P/E < 25x	Price at Compression	+3 Months	% Change	+6 Months	% Change	+9 Months	% Change	+12 Months	% Change
04/30/2021	$131.46	$145.86	+11%	$149.80	+14%	$157.65	+20%	$170.33	+30%
09/30/2021	$141.50	$178.20	+26%	$174.61	+23%	$142.48	+1%	$165.02	+16%
04/22/2022	$161.79	$154.09	-5%	$136.72	-15%	$180.19	+12%	$142.48	-12%
08/29/2022	$161.38	$144.22	-11%	$147.27	-9%	$147.92	-8%	$180.19	+12%
10/02/2023	$173.75	$192.53	+11%	$175.43	+1%	$233.00	+34%	$233.00	+34%
03/04/2024	$175.10	$194.03	+11%	$216.75	+25%	$229.00	+31%	$238.03	+36%
04/03/2025	$203.19

What’s Different This Time?

Some investors may be concerned that this time is different, given growing geopolitical friction between the U.S. and China.

With Apple heavily dependent on Chinese manufacturing and facing potential tariffs, the risk to earnings estimates remains elevated.

Still, Bank of America sees strategic levers Apple can pull to counteract these risks.

“We note that Apple has many options to mitigate downside risk to estimates. These include: sourcing more iPhones from India, applying higher pricing in products/services, pressuring its supply chain for better economics, introducing new products at higher price points and changing cadence of product releases,” the report says.

Read now:

• These 5 S&P 500 Winners Held Strong In Q1 — Can The Rally Continue?

Photo: Shutterstock