Apple’s current status as a consolidated, high-revenue company offers lower risk and reliable returns. Still, with fewer growth triggers and a high P/E ratio, it presents a steady rather than high-return investment opportunity.
- Apple has delivered extraordinary returns over the past two decades, but with slower growth and higher prices, its current investment value is debatable.
- The company is now a cash cow, offering lower volatility and reliable returns through dividends and buybacks.
- Despite a high P/E ratio, upcoming AI trends and potential product sales improvements present growth triggers, making Apple a steady but not necessarily high-return investment.
Over the past few decades, Apple (NASDAQ:AAPL) has stood out as a significant player in the tech industry, delivering extraordinary returns with a total return of over 45,000% in the last two decades.
However, with more moderate growth and a higher stock price (and rich multiples), it’s worth questioning if Apple is still a worthwhile investment. Let’s delve into this.
Apple Isn’t What It Used to Be (It’s Not Worse, Just Different)
Apple is no longer the company but is still proving to be a technological leader and brand powerhouse. When the iPhone launched in 2007, there were doubts about whether Apple could maintain high margins with this product or if it would become commoditized. Today, those doubts have vanished. The company has built one of the world’s strongest brands and created a robust ecosystem that mitigates competition and ensures significant profitability.
On the other hand, Apple now generates $380 billion in annual revenue with a net income exceeding $100 billion, marking its “complete” consolidation. We’ll unlikely see Apple grow its revenue at an accelerated pace of 15-20% or significantly increase its already extraordinary margins.
But this isn’t necessarily a drawback. This “certainty” and consolidation position Apple as a cash cow and a quality-focused stock. These factors, combined with Apple’s status as one of the largest companies globally and extensive analyst coverage, mean there is a minor asymmetry in AAPL. This makes it a less attractive choice for aggressive investors seeking high returns but a solid option for conservative investors looking for lower portfolio risk and attractive carrying costs (dividends and buybacks).
For instance, Apple’s current dividend yield is about 0.5%, but combined with its substantial buyback, the shareholder yield reaches 3.5%.
Apple Has Triggers, But It’s Not a Bargain
Looking at the last ten years, the average forward P/E ratio for Apple Stocks is 19.8x, while over the past 20 years, it has averaged around 21x. The ratio is close to 28x, which is my main concern with the current investment thesis. Apple now has fewer growth triggers and faces some short-term challenges. While a premium for its consolidation and security is justified, the current level is far from a bargain.
However, I don’t think it’s irrational (for instance, to short or sell Apple positions). The company has some compelling triggers, like the AI trend, which should intensify following the WWDC next week, where management is expected to make AI-related announcements that could further consolidate its ecosystem and boost product sales.
Additionally, improving its product sales cycle (mainly iPhone), potentially driven by these hardware and software disruptions and aided by better macroeconomic conditions, could be a positive catalyst. If we’re looking at a near-term P/E of around 28x but with currently suppressed fundamentals, these earnings boosts (likely in the medium term) could bring the multiple back to historical averages without the stock price falling.
The Verdict
Considering the above information, I hold a neutral stance on Apple Stocks. I acknowledge their moats and unique position in the sector but see minor asymmetry at the current valuation.
In other words, it’s not too late to buy Apple shares. Still, it’s essential to understand these characteristics, which some investors might view favorably, such as higher shareholder returns through dividends and buybacks and greater safety (beneficial in ‘fly-to-quality’ moments).
Even though the shares might seem expensive in terms of historical multiples and conservative DCF, some triggers improve the potential outlook for the company and its stocks.
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