There’s no question that the tech giant has made great investments in the past.
Without a doubt, Apple (AAPL 0.36%) is one of the most successful investments anyone can make. Over the past decade, the consumer technology giant’s stock has generated a total return of 932%. This gain exceeds the S&P 500’s total return by 265%.
Today, Apple is the world’s most valuable company, with a market capitalization approaching $3.6 trillion. This is a very large company with a huge sales base, so future revenues will never come close to what they have been in the past.
But will investing $1,000 in this “Magnificent Seven” stock make you a millionaire someday?
apple is a great company
I believe Apple should be on every long-term investor’s watch list. That’s because this company is a great company.
It has one of the widest economic moats, mainly due to its strong brand presence. Consumers around the world have a strong affinity for the company’s products, resulting in years of strong demand and proven pricing power.
Other companies can only dream of being as financially healthy as Apple. Over the past five years, the company has averaged an impressive operating margin of 28.8%. The combination of premium priced products and operating leverage has resulted in extraordinary profitability.
This led to a massive operating cash flow of $91 billion in the first nine months of fiscal 2023. Despite buying back $26 billion worth of stock and paying $3.9 billion, Apple is sitting on so much cash that it doesn’t know what to do with it. Dividends for the latest fiscal quarter. As of June 29, the company had $52 billion in net cash on its balance sheet.
I also want to mention Apple’s strong ecosystem of combined hardware and software products. We develop our own services and software to provide even more attractive products to our users. Services revenue is growing faster than product sales and has higher gross margins.
It doesn’t hurt that Warren Buffett’s Berkshire Hathaway is a major shareholder. The conglomerate owns 2.6% of Apple’s outstanding shares. It’s certainly a vote of confidence.
lower expectations
There are endless reasons to value this business. There’s no question that Apple is one of the highest quality companies on the planet, but that doesn’t automatically mean its stock is an opportunity to buy. In fact, I think this would be a terrible investment idea at this point.
The only reason I feel strongly about this is because of valuation. The price-to-earnings ratio is 35.1 times. This represents a 59% premium compared to the average over the past 10 years. The market is clearly more optimistic about the business.
Paying such a high valuation only makes sense if Apple is experiencing tremendous growth. However, this is not the case at this time. Sales in fiscal 2023 decreased by 2.8%. And through the first three quarters of fiscal 2024, revenue growth was less than 1%.
Apple’s most important product, the iPhone, is currently in a very mature stage of its lifecycle, with few innovative updates that encourage consumers to continually upgrade their devices.
Additionally, Wall Street consensus analysts predict that earnings per share will grow at just 10.9% annually from fiscal year 2023 to fiscal year 2026. This outlook does not justify paying historically high valuations.
In my opinion, it’s not wise to buy Apple stock now. What’s more, investing $1,000 in stocks is unlikely to make the average investor a millionaire.
Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
