Is It Too Late to Invest in Apple Stock? Here Are Two Reasons Why It Might Be

Apple Inc. (NASDAQ: AAPL 0.00%↑) has delivered phenomenal returns for its investors over the years.

In the past decade alone, its stock price has surged by 787%. Looking back 20 years, the gain is an extraordinary 35,860%. These numbers dwarf the performance of major market benchmarks like the S&P 500 and the Nasdaq Composite.

Today, Apple stands as the world’s most valuable company, with a market capitalization approaching $3.5 trillion and $386 billion in revenue over the past year. But with the company reaching such incredible heights, many potential investors are wondering: Is now still a good time to buy Apple stock, or has the ship sailed? Here are two reasons why it might be too late.

Apple's Growth is Slowing Down

Apple is a tech titan with an estimated 2.2 billion active devices worldwide. While this massive footprint showcases the company’s market dominance, it also highlights a challenge: Apple’s products are already widely adopted, which makes further growth more difficult. 

Unlike the early years, Apple is now a mature business. As the company grows larger, generating strong revenue growth becomes increasingly tough. For example, in fiscal 2023, Apple reported a surprising 2.8% decline in year-over-year sales.

A key concern is the iPhone, Apple's flagship product, which has seen fewer groundbreaking innovations in recent years. This trend reduces the urgency for consumers to upgrade to the latest model annually. While Apple is betting on its AI initiative, Apple Intelligence, to spur a wave of upgrades, I am not convinced that new AI features will be compelling enough for most consumers to drive substantial demand. 

On the brighter side, Apple's services division — which includes Apple Pay, Apple Music, and Apple TV+ — has been a strong performer, posting 14% year-over-year growth in its most recent quarter. This segment also boasts a 74% gross margin, contributing significantly to Apple’s profitability. The synergy between Apple’s hardware and software creates a robust ecosystem that attracts and retains customers, giving the company a significant competitive edge.

However, despite the success of its services division, Apple’s overall growth outlook remains modest compared to its historical performance. Analysts expect the company's revenue and earnings per share (EPS) to grow at compound annual rates of 5.9% and 10.9%, respectively, from fiscal 2023 to 2026 — a much slower pace than the growth rates seen in the past few years.

Apple's Valuation Appears Expensive

Slowing growth is one reason I believe it might not be the best time to buy Apple stock, but another concern is its current valuation.

At the moment, Apple shares are trading at a price-to-earnings (P/E) ratio of 34.4. This is about 22% higher than the average multiple over the past five years and a significant 43% premium compared to the S&P 500's valuation.

It's true that Apple is an exceptional company with a powerful brand, pricing power, and a strong cash flow. However, buying the stock at such a high valuation could limit future returns. If Apple's P/E ratio were to return to its five-year average of 28.2, and its EPS grows at 10.9% annually, the annualized return might only be around 7% over the next five years. This would be below the S&P 500's long-term average annual return of about 10%.

The Bottom Line

Apple has delivered tremendous returns for its shareholders in the past, but its growth is slowing, and its valuation is high. While Apple is still a world-class company with many strengths, I believe now might not be the best time to buy the stock. If the stock price were to drop significantly, that could present a more attractive entry point. Until then, potential investors might want to approach with caution.

*Disclaimer: Not Financial Advice. Investors should conduct thorough research and seek professional advice before making any investment decisions.

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