Apple Stock Analysis
Apple's latest product lineup has arrived, but are these innovations enough to reignite the company’s growth?
For the first time since 2019, Apple experienced a year-over-year revenue decline, falling 2.8% in 2023. Earnings in 2024 have also underwhelmed, with quarterly profits remaining mostly flat through the first three quarters. Despite sluggish growth, Apple's stock reached an all-time high last quarter, as investors remained optimistic that the new iPhone launch would revitalize demand. However, this optimism faltered when initial reports revealed that pre-orders for the iPhone 16 were 12.7% lower than those for the previous year’s model. This led to a swift sell-off, causing the stock to open lower.
Apple has faced criticism for a perceived lack of innovation in recent years, with many consumers choosing not to upgrade their iPhones annually due to minimal changes. While the company has mitigated the drop in iPhone demand with other products and services, iPhones still account for 45-55% of its overall revenue.
Despite slower iPhone sales, Apple has compensated with strong growth in its services and other hardware products. Services, in particular, now make up over 25% of the company’s quarterly revenue, significantly boosting profitability. In 2023, Apple’s net income nearly hit $100 billion, and its free cash flow stands at $104 billion. These figures position Apple as a tech giant capable of weathering economic downturns and temporary slumps.
However, Apple's price-to-earnings (P/E) ratio is currently high at 33x. Savvy investors typically prefer buying within a P/E range of 15-25x, with the lower end being more attractive. Apple could reduce its P/E ratio by either increasing profit margins or if its stock price declines. While P/E is only one measure of a stock’s valuation, Apple’s strong revenue streams and massive free cash flow reserves still make it a compelling long-term investment. However, keeping some cash on hand for a potential buying opportunity at lower prices might be a wise strategy.