Despite apple (NASDAQ:AAPL) The stock fell during last week’s selloff to nearly 12% from its 2024 high (as of Tuesday’s close), but that wasn’t enough to make me want to buy it.
So why do I feel bad about a stock that so many others are bullish on? It all has to do with… evaluation.
Apple’s growth has been weak.
If you live in the United States, chances are you either own an iPhone or another Apple product, or know someone who does. Apple has a slightly less dominant brand worldwide, but it is still a very well-known and popular brand.
Because Apple’s business is mostly focused on high-end electronics, it is more vulnerable to demand cycles than companies that sell lower-cost electronics. As inflation worsened, Apple’s sales struggled.
Since the start of 2022, Apple has struggled to achieve double-digit revenue growth, and some quarters have even seen sales decline compared to the same period last year. The most recent quarter saw revenue increase year-over-year, but sales of its flagship product, the iPhone, declined slightly year-over-year.
The past two and a half years would have been much worse for Apple if it weren’t for its services division. This division includes revenue from advertising, the App Store, cloud services, and digital content like Apple TV and Apple Music. Unlike hardware revenue, which fluctuates, services are subscription-based, which is great for offsetting the more cyclical side of the business.
But is that enough to justify buying the stock?
Numbers do not match inventory.
Great companies trade their stock prices for great valuations. Some companies are so high performing that investors are willing to pay a lot of money for them. Apple has been in this position for a while, but I want to challenge that notion.
Its revenue growth has been weak, and while its earnings growth has been somewhat in line with the general market, it still struggles to achieve double-digit increases.
With Apple on track to post three years of disappointing results, I’m confident it doesn’t deserve the grand prize.
At 32 times forward earnings estimates and 33 times trailing earnings, the stock is as expensive as it was in early 2021. Back then, revenue was growing 50%, with earnings doubling year-over-year. Apple was worth the premium investors paid back then, but the Apple of today is not.
Apple investors are holding out for the idea that the company’s AI will be necessary and will drive consumers to upgrade to the latest iPhones. Since the feature can only be enabled on the latest generation of phones, it could trigger a wave of upgrades. But that’s not guaranteed and won’t do much for the stock beyond a one-time demand surge.
There are much better technology investments out there. Microsoft They trade at roughly the same valuation but consistently post double-digit revenue and earnings growth. Or you can take a look at Meta platforms, It’s less expensive and growing incredibly fast (revenue increased 22% in Q2 and profits increased 75%).
Apple is too expensive and underperforming to justify its valuation. At these prices, there are far too many better companies to invest in, and I think Investors should put their money there instead.
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One stock I won’t go near even after the market sell-off has sent its price down. Originally posted by The Motley Fool
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