The Apple stock price has done well in the past decades, transforming it into the biggest company in the world with a market cap of over $3.54 trillion. It has risen by over 38% in the last twelve months, beating several companies in the Magnificent 7. So, is Apple’s valuation justified?
Apple is a highly expensive company
The ongoing Apple stock price surge has helped to make it a highly expensive company with a $3.54 trillion valuation.
This is a hefty valuation considering that the company made a net profit of over $96 billion in the last financial year.
Apple now has a forward price-to-earnings ratio of 32.54, higher than the sector median of 27.37. Its non-GAAP PE ratio is also 32, higher than the sector median of 22.
These valuation metrics are higher than the S&P 500 index average of 21. They are also higher than those of Microsoft, which has a forward P/E ratio of below 30.
Apple is a good company with some of the best products in the technology sector globally. And to a large extent, it deserves a premium valuation.
However, we believe that Apple’s valuation is stretched since the firm is slowing substantially and is no longer an innovative company.
Apple has become a giant company over the years because of its strong innovation and the quality of its services and products. Recently, however, Apple has largely lost its innovative edge, as Mark Zuckerberg noted.
The company launched the iPhone in 2007, a product that has become its biggest recenue earner. Over time, the company has launched other numerous products like the iPad, Apple Watch, airpods, and Vision Pro.
Apple Watch and the iPad were highly successful, but the Vision Pro has yet to achieve this success. The company also launched Apple Services, which has become a focus of its operations. Apple Services have become a big part of its business as it generated over $96 billion in annual revenue.
Apple’s growth expectation has slowed
Apple’s growth is expected to continue slowing in the coming years. Analysts expect that its second quarter revenue will be $94 billion, up by 3.65% from what it made a year earlier.
The company will then make $89.35 billion in the next quarter, a 4% increase from a year earlier. This growth will then bring its annual revenue to $409 billion, followed by $442 billion next year.
The company’s earnings per share (EPS) are expected to be $7.32 this year, up from $6.08 a year earlier.
Apple lacks a clear catalyst to supercharge its stock in the coming years. IDC predicts that smartphone sales will slow by about 4% this year. And with the next iPhone expected to be similar to the last one, the odds are that its sales will be slow this year.
Analysts have a mild expectation about Apple, with the average stock forecast being $252, higher than the current $235. This also explains why Oppenheimer analysts downgraded Apple from outperform to perform. Jefferies also downgraded AAPL stock to underperform.
Read more: Apple stock price analysis: can AAPL’s valuation be justified?
Apple stock price analysis
The daily chart shows that the AAPL share price peaked at $260 in December last year and then retreated to the current $235. It is oscillating at the 50-day and 100-day moving averages and a crucial level that was its highest point on July 15.
The stock remains above the ascending trendline that connects the lowest swings since August last year. Therefore, there is a likelihood that the AAPL share price will continue falling, as sellers target the next support at $223.
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