Apple Stock: Analyzing the Buy, Sell, or Hold Dilemma

Apple: Buy, Sell, or Hold? | The Motley Fool

This could be Apple's most important iPhone launch in a long time. Consumer electronics giant Apple (AAPL -0.70%) recently unveiled the iPhone 16 at its annual Fall product event. It's become somewhat of a holiday for loyal customers who have come to love Apple's brand and device ecosystem. Over two billion people use active iOS devices, from phones to tablets, computers, and watches. The stock is also an all-time great that has made long-term shareholders into millionaires on its way to becoming a multitrillion-dollar behemoth. However, Apple's latest iPhone could face the most pressure it has in a long time. Artificial intelligence (AI) is changing modern life, and the world expects Apple to deliver on high expectations after unveiling several AI features at a developer event earlier this year. Apple stock continues to trade near its all-time highs; should investors buy, sell, or hold it today? Here is what you need to know. New iPhones arrive annually, but not every year delivers game-changing upgrades that make everyone go out and buy new phones. Apple's last colossal step forward came in 2020 when it launched its first 5G iPhone. Annual sales soared to nearly $400 billion but have plateaued since then: AAPL Revenue (TTM) data by YCharts. Apple packaged its AI features into a technology called Apple Intelligence, which requires enough computing power that only iPhone 15 Pro, Pro Max, and iPhone 16 models can run it. The hope is that Apple's leap into the AI era will spur a new growth cycle for the company that can finally boost annual sales past where they've stalled out for the past several years. Apple's stalling revenue growth is simple: People don't upgrade their phones as often as they once did. According to Verizon's CEO, their average customer only upgrades every three years. There are two primary reasons for this. For one, smartphones have gotten increasingly expensive. Want the new iPhone? It costs as much (or more) as a personal computer. Secondly, smartphones have matured. A decade ago, each year's model brought notable improvements. Today, customers usually get incrementally better cameras and processors. Giant leaps forward, such as 5G or AI capabilities, are rare now. It's become hard to justify spending that money yearly, especially while consumers are pushing back on high prices across the economy. Apple needs a home run with the iPhone 16. Despite Apple's revenue flatlining, the stock's price and valuation have crept higher in anticipation of AI-driven growth: AAPL Revenue (TTM) data by YCharts. The stock's price-to-earnings ratio has doubled to 34. Without notable sales growth, analysts have continually lowered their growth expectations. This isn't sustainable; Apple's growth will pick up to justify the higher valuation, or the stock price will come down to match Apple's lower performance. How it breaks will probably depend greatly on how the iPhone 16 sells. Even the best companies can be poor investments when their price doesn't make sense. Unfortunately, Apple's stock price is acting like the iPhone 16 is already a home run. Apple could grow its earnings by 50%, and the stock would still trade above its average P/E ratio from the past decade. Famous investor Warren Buffett has dramatically trimmed Berkshire Hathaway's stake in the company. However, Apple represented a massive portion of his company's portfolio, so selling some makes sense for diversification reasons alone. The bottom line? Investors should do what they feel comfortable with. Some may want to sell to realize profits, while others believe in holding blue chip companies like Apple through the ups and downs. Ultimately, nobody knows what share prices will do in the future. For all anyone knows, Apple stock could trade flat for years until earnings grow enough that the valuation makes more sense. One thing seems clear: The evidence points to a situation where there is far more downside risk in Apple than upside potential at these prices. This risk-to-reward dynamic is not something investors should buy into, so Apple is probably not a great investment today.

Apple Stock: Buy, Sell, or Hold? | The Motley Fool

AI excitement isn't enough to make this "Magnificent Seven" stock a buy. Tech giant Apple (AAPL -0.70%) has seen a nice run-up this year. Shares have risen more than 15% year to date as of this writing. Bidding up the stock in 2024, investors seem convinced the company could benefit from its innovations in artificial intelligence (AI). While the iPhone maker might see a solid upgrade cycle for its new iPhones this year thanks to AI, this doesn't automatically make the stock a buy. Valuation matters, too -- and the stock's valuation is looking quite pricey. Of course, that doesn't necessarily make the stock a sell, either. Indeed, if I had to categorize the stock as either a buy, sell, or hold, I'd probably call it a hold. There's no denying that Apple sets a high standard in business. On its approximately $386 billion in trailing-12-month revenue, for instance, the company generated an astounding $104 billion in free cash flow. This, combined with the company's war chest of cash ($153 billion at the end of its most recent quarter), enabled it to buy back an incredible $96 billion worth of its own stock over this same period. And this is on top of the $15.1 billion it spent on dividends. Extraordinary! Powering these impressive financials is an integrated ecosystem of hardware, software, and services its customers love. Apple's loyal customer base means the company can charge high prices relative to its product costs, evidenced by its trailing-12-month gross profit margin of 46%. Even more, while Apple's iPhone sales may be its bread and butter and its various products may be what the company is best known for, its services business is growing faster than its overall business and boasts a gross profit margin of 74%. Driven primarily by App Store sales and subscriptions and the company's ever-expanding suite of native services, like Apple TV, AppleCare, iCloud storage, and Apple Pay, this lucrative segment will likely grow as a percentage of revenue over the long haul, making the company even more profitable. This segment will likely provide the tech company with an engine for sustainable long-term growth. Despite all of these amazing facets of Apple's business, there are two reasons investors should be cautious about buying the stock today. First, Apple isn't the fast-growing company it used to be. Total revenue rose 5% year over year in its most recent quarter. Sure, earnings per share rose 11% year over year with the help of margin expansion and share repurchases, but such low top-line growth is still a cause for concern. Second, Apple stock's price-to-earnings ratio of about 34 today arguably already prices in strong growth for years to come. Even if the tech company continues growing its top line at current rates for the next decade, shareholder returns may be underwhelming at this valuation. Still, given how great Apple's business is, shares are probably more of a hold than a sell today. After all, a quality business like this is probably more likely to surprise to the upside than the downside.

Is Apple Stock a Buy Now? | The Motley Fool

Apply (AAPL -0.70%) regained its title as the largest company in the world and currently leads second-place Microsoft by about 11%. That's a sizable lead, which may cause some investors to wonder if Apple stock is a buy right now. Apple's business isn't difficult to understand. It mostly sells hardware, such as phones, laptops, and tablets. However, it also offers some subscription services. While the subscription part of the business may be a smaller part, it's really the only part that has performed recently. In the third quarter of fiscal year 2024 (ending June 29), sales in its Services division rose 14%. While Mac and iPad sales also grew in Q3, iPad sales significantly shrunk in Q2 and Q1.Besides that, all of its other divisions shrank in Q3, including its largest segment: the iPhone. Overall, it has been a hard road selling its hardware over the past few years, but Apple investors are hoping a new technology could spur a round of upgrades. Apple recently announced its take on artificial intelligence (AI): Apple Intelligence. This feature is due for beta release sometime this fall and is Apple's integration of generative AI into its ecosystem. Although it lags well behind its Android competition in this integration, it will likely still be a hit due to the loyal Apple following. Two factors are at play as to why it could improve Apple's current business state. First, these features will only be available on iPhones 15 Pro and Pro Max or new models. This means that some cheaper models and all of the existing phones will be excluded from Apple Intelligence, which some estimate to be 90% of the iPhone user base. This could drive a massive upgrade cycle when the iPhone 16 launches later this month, which would provide Apple a much-needed sales boost. Second, it's likely that Apple is also playing the subscription game here. Apple's competitors are offering AI tools for free on their devices for a limited time. After a year, a subscription fee will likely follow, which may irk the consumer but will be a huge boost to Apple's recurring revenue if it becomes a must-have feature. These two factors are why Apple has regained its title as the world's largest company, but if this initiative fails, the stock could be in for trouble. If I were to present you with the following information about a stock, would you buy it? Data source: YCharts. YOY = Year over Year. You'd probably think that's an expensive stock for hardly any revenue growth, but that's where Apple is trading at. Now, let's compare three more companies. Data source: YCharts. YOY = Year over Year. All of those look like far more attractive investments, as A and B are growing much faster and trade at a far lower price tag than Apple. Or, company C is growing at a rapid pace but isn't that much more expensive. Company C is an easy guess: Nvidia. But A and B may be a bit more tricky: Company A is Meta Platforms, and Company B is Alphabet. These two are doing far better than Apple from a business perspective but don't have near the pedigree that Apple stock does. So, does Apple deserve the premium? I'd say no. For Apple's valuation to reach the same levels as Meta or Alphabet, its earnings would need to increase by about 50%. That's a tall task even if Apple's iPhone sales ramp up, and it's likely-to-launch Apple Intelligence subscription does well. Apple holds a huge premium over its peers but doesn't have much to show for it. As a result, I think there are far better buys in the market than Apple, and investors would be better off looking at one of its peers for an investment right now.