Is Apple stock too expensive? | The Pied Fool

Apple (AAPL -0.04%) is currently the largest company in the world by a decent margin, but some may not be sure if it deserves that edge. From several perspectives, Apple stock looks very expensive and may be overpriced.

Is that the case? Or is there more to the Apple story?

Apple’s sales growth was non-existent

Apple is one of the most recognizable companies in the world, and its products probably need no introduction. However, Apple’s sales have not kept up with its reputation over the past two years. Apple has struggled to grow revenue significantly in any capacity, and its sales likely would have declined if not for the strength of its subscription services.

AAPL earnings data (quarterly annualized growth) by YCharts

Although Apple is coming off its best quarter in some time, the 5% revenue growth isn’t all that impressive, especially compared to some of its big tech peers. If you look at Apple’s most recent quarter (the third quarter of fiscal 2024, ending June 29), it’s clear that Apple is still struggling.

Data source: Apple. YOY = Year Over Year.

While iPad sales may be up from last fiscal year, they still generate roughly the same amount of revenue as they did in fiscal 2022 ($7.2 billion) and fiscal 2021 ($7.4 billion). Services once again saved the day as its growth has been significant and sustainable for quite some time.

The biggest problem is iPhone sales, which have remained flat from fiscal 2022 ($40.7 billion) and fiscal 2021 ($39.6 billion). In 2021 and 2022, Apple released the iPhone 13 and 14, respectively. The price points for the base model are the same as this year’s iPhone 16: $799. So without any price increases over the starting price, it’s clear that Apple hasn’t been able to sell more iPhones than it normally does.

But can that change?

The iPhone 16 gives consumers a reason to upgrade

There hasn’t been a real reason for many people to buy the new iPhone recently. Yes, battery life may have improved and cameras get a slight upgrade from year to year, but has there really been a game-changing feature released in the past few years?

That feeling may change with the iPhone 16, as these phones (along with the iPhone 15) will have access to Apple Intelligence, which is Apple’s interpretation of generative AI. Time will tell if this feature is truly a game changer or just Apple following the rest of the tech world.

But is that enough to make Apple stock reasonably priced even if Apple Intelligence is a hit?

Apple stock is very expensive for its growth

Apple shares trade at the peak of recent valuation at 33.6 times earnings.

AAPL PE Ratio Data by YCharts

If you look at forecast earnings, it’s clear that Wall Street analysts aren’t expecting much growth either, with just 2% growth expected by the end of this fiscal year and 13% growth next year.

A growth rate of 13% is normally acceptable for a stock valued slightly above the market (as measured by S&P 500). However, Apple stock trades at a significant premium to the S&P 500’s forward earnings of 22.6 times.

So, given that Apple still has a huge premium to the S&P 500, even after how much growth Wall Street thinks it’s going to get from the release of its new iPhone, I think Apple stock is way overpriced.

If you compare it to other big tech companies in its class, there are plenty of worthy alternatives. Apple isn’t the stock it once was, and investors need to recognize that and move on to better picks.