Apple's Shares Have Soared to Record Highs in a Specific Indicator, Signaling Potential Warnings for 2025.
Observing companies smashing their income or profit records is usually a positive sign for investors, suggesting the company is climbing new heights. Yet, there are certain figures you'd prefer not to see hitting new highs, such as debt or valuation.
Apple (AAPL -0.82%) has lately set a new record, though not a desirable one. This trend is a significant warning flag for investors to take notice in 2025 as it might lead to a downturn for the stock price.
Apple's expansion has slowed down drastically
Apple has long been one of the leading consumer brands. Its iPhones have become the go-to device for the majority of smartphone users in the U.S., who also sport Apple's smartwatches, AirPods, and rely on Apple computers. Despite its long-term dominance, Apple seems to have reached its zenith.
Apple has failed to launch any innovative products or technology for quite some time. Consequently, the company has experienced a considerable stagnation. Sales of iPhones, Apple's principal revenue driver, have not shown significant growth for quite some time.
| Year | Q4 iPhone Revenue | YOY Growth || --- | --- | --- || 2024 | $46.2 billion | 5.5% || 2023 | $43.8 billion | 2.8% || 2022 | $42.6 billion | 9.5% |
2024
A mid-single-digit percentage revenue growth rate is a clear sign that a company has matured. This growth rate isn't likely to improve unless Apple introduces a new product or raises its prices. However, the company is being traded as if its revenue is still increasing at a mid-20% pace or more.
$46.2 billion
Apple's stock has now reached a new decade-high valuation level despite showing little growth. Although Apple's stock has traded for a higher P/E ratio during its public history, this is the first time it has traded this high since iPhone sales gained significant importance in its revenue.
5.5%
I've also charted Apple's revenue growth rate to illustrate that the last time Apple was valued at roughly 40 times its trailing earnings, its revenue was increasing by more than 50% annually. With Apple's revenue now growing at a much slower pace, this valuation appears to be unsustainable because it won't be able to grow its way into a more reasonable price tag.
As a consequence, Apple is likely to revert to a more historically typical valuation level through a price decrease.
2023
How much of a decline could investors anticipate?
$43.8 billion
Given that Apple is growing at a slower pace than the overall market, there's no justification for Apple outperforming the S&P 500 (^GSPC -0.49%). With the S&P 500 trading at a trailing P/E ratio of 25.2 and a forward P/E of 21.9, I'd expect Apple's stock to trade around those levels if it continues to put up mediocre growth.
2.8%
Wall Street analysts predict that Apple's revenue will rise 6% in fiscal year 2025 (ending September 2025) and 8% in fiscal year 2026, suggesting this modest growth will persist over the following years.
9.5%
If Apple's stock drops to a P/E ratio of 30, the stock price would need to decrease by nearly 30%. A P/E ratio of 25 (around the S&P 500's valuation) would imply a fall of more than 40%. However, these exact declines are unlikely to occur because Apple's earnings will grow quarter by quarter, thereby helping its P/E ratio fall. Nevertheless, it seems that a price correction is in order, as years of growth have already been factored into the stock price.
2022
There isn't much motivation for choosing Apple over other major tech companies. It's expanding slowly and is overvalued. Essentially, its brand name is the only attraction for investors. Investors should consider divesting from Apple stock, even some of its most ardent supporters (like Warren Buffett) have been selling Apple shares over the past year.
$42.6 billion
In light of Apple's stagnating growth and overvaluation, it might be wise for investors to reconsider their financing decisions. With Apple's stock price reaching new highs despite demonstrating minimal growth, it could be a potential risk for investors looking to invest in finance.
Given Apple's mid-single-digit percentage revenue growth rate and the overvaluation of its stock, it would be prudent for investors to diversify their portfolio and allocate their money more effectively in the investing landscape.
