Is It Too Late to Buy Apple Stock?

Apple 's (NASDAQ: AAPL) track record of compounding investor capital is unbelievable. In the past 10- and 20-year periods, shares have rocketed 787% and 35,860% higher, respectively. These gains far outpace both those of the S&P 500 and the Nasdaq Composite indexes.

Apple raked in $386 billion in revenue in the past 12 months. And its market cap now sits close to $3.5 trillion, making this the world's most valuable enterprise. So, is it too late to buy the stock? Here are two reasons why I believe that it is.

Apple's growth prospects

Apple is a dominant tech firm. There are more than 2.2 billion of its devices that are active across the world. But that broad reach also demonstrates how already widely used the company's products are, which means that future growth won't resemble the past.

This is simply a more mature enterprise today than it was five, 10, or 15 years ago. And with such a massive revenue base, it becomes increasingly difficult to drive strong top-line gains. In fiscal 2023, Apple reported a surprise 2.8% year-over-sales decline.

The iPhone, for example, has fewer game-changing updates that warrant upgrading to the newest phones each year. The hope is that Apple Intelligence , the company's AI initiative, can spur a huge upgrade cycle with the upcoming iPhone release. However, I'm not overly optimistic about the new technological features boosting demand so much that Apple's growth gets supercharged, as I don't believe most consumers find AI important enough to their daily lives.

The bright spot when it comes to growth has been the services division. Offerings like Apple Pay, Music, and TV+, to name just three, helped propel 14% year-over-year segment sales growth in the latest quarter. It also doesn't hurt that services register an impressive 74% gross margin.

Moreover, the combination of hardware and software is exactly what creates Apple's powerful ecosystem. This is a key competitive advantage the business has developed that has allowed it to thrive.

But even with the rise of services, Apple's growth isn't going to be anything to write home about, at least when compared to its own history. According to Wall Street consensus analyst estimates, the business is projected to increase sales and earnings per share (EPS) at compound annual rates of 5.9% and 10.9%, respectively, between fiscal 2023 and fiscal 2026. That's a significantly slower pace than in the previous three years.

Apple's valuation

Apple's muted growth prospects are one reason that I believe it's not an opportune time to buy the stock. Another reason comes down to the valuation.

As of this writing, Apple shares trade at a price-to-earnings (P/E) ratio of 34.4. That represents a 22% premium to the trailing-five-year multiple. And it's 43% more expensive than the broader S&P 500.

To be fair, it's easy to argue that Apple might deserve this steep valuation. This is, without a doubt, one of best businesses the world has ever seen, with a powerful brand, pricing power, and huge cash profits.

However, investors will likely see poor forward returns if they buy the stock when the company's valuation is so high. Assuming Apple's P/E ratio comes down to its past five-year average of 28.2 over the next five years, coupled with that previously mentioned 10.9% EPS growth, and we get to a forecasted annualized return of just 7% between now and 2029. That would underperform the S&P 500's historical 10% average yearly return.

Apple has worked out to be a fantastic investment in the past. But I definitely believe that it's too late to buy the stock today. If there were a sizable price dip, then my opinion would certainly change.

Should you invest $1,000 in Apple right now?

Before you buy stock in Apple, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $630,099 !*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy .