Is it too late to buy Apple stock?

By selling some of the most in-demand hardware devices on the planet, apologize (AAPL 1.02%) It has become one of the most dominant companies. The current market capitalization of $2.8 trillion proves this.

Surprisingly, this FAANG stocks It was a huge winner for shareholders. It has soared 856% over the past 10 years. Nasdaq Composite Index and S&P 500.

Is it too late to buy Apple?

growth will be difficult

According to Wall Street analysts, Apple’s revenue is expected to grow at a CAGR of 4.2% from fiscal 2023 to fiscal 2026. This would be a significant slowdown compared to the 8.4% annual revenue growth over the past decade. But this shouldn’t come as a shock to anyone.

Apple is a huge company today. Executives say there are 2.2 billion active devices worldwide, demonstrating the company’s ubiquity. It is extremely difficult to continue rapid growth based on $383 billion in sales in fiscal 2023.

Making matters more difficult is the maturity of Apple’s flagship product line, the iPhone, which generated 58% of the company’s total revenue in the last fiscal quarter (Q1 2024, which ended Dec. 30). However, with the latest upgrades being less game-changing innovations, consumers will have no problem putting off purchasing the latest iPhone.

Investors will point to its fledgling services division, which reported 11% year-over-year revenue growth in the first quarter. However, since this segment relies on selling more products in the first place, its potential is limited by hardware demand trends.

I believe it’s entirely reasonable to assume that Apple’s expansion will be much quieter in the coming years.

high quality business

Just because the growth isn’t spectacular doesn’t mean it’s not a great business.

First of all, Apple has one of the most powerful brands in the world. Not only does this lead to tremendous pricing power and customer loyalty, but it also protects the company from ongoing competitive threats. Apple’s wide range of products truly sets it apart in the industry.

What’s even more impressive is the company’s incredible profitability. Over the past five years, Apple has operating profit margin It recorded an average of 27.8%.

And generating cash is not a problem. Apple generated a total of $304 billion in positive free cash flow over the past three fiscal years. Management is doing a good job of returning capital to shareholders through share buybacks and dividends.

The balance sheet is clean. As of December 30, Apple’s debt amounted to $108 billion. That’s not a problem at all, considering the company currently has $173 billion in cash, cash equivalents and marketable securities on its asset side.

Investors need not worry about a potential recession. Apple always seems to operate from a position of strength.

investment angle

The market seems fully aware of how great this business is. This is displayed as: price/profit The (P/E) ratio is 27.8. This is significantly more expensive than the stock’s 10-year average price of 21. And that represents a huge premium to the S&P 500.

It’s best to look at things from a new perspective. Investors are being asked to pay premium valuation multiples for companies whose growth is expected to slow in the future. Even considering Apple’s other favorable characteristics, namely its brand and financial situation, I don’t think this is a wise choice.

This doesn’t mean it’s too late to buy stocks. My view is that Apple would still be a good investment if the P/E ratio were lowered significantly.