Is it too late to buy Apple stock?

Applehis (AAPL -0.70%) the investor capitalization track record is unbelievable. Over the past 10- and 20-year periods, the stock is up 787% and 35,860%, respectively. These gains far exceed both S&P 500 and the Nasdaq Composite indexes.

Apple posted $386 billion in revenue over the past 12 months. And them market capitalization now it’s close to $3.5 trillion, making it the world’s most valuable enterprise. So is it too late to buy the stock? Here are two reasons why I think it is.

Apple’s growth prospects

Apple is a dominant technology company. There are over 2.2 billion active devices worldwide. But this broad reach also demonstrates how widely used the company’s products are already, meaning future growth won’t be like 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 generate strong top-line earnings. In fiscal 2023, Apple reported a surprising 2.8% decline in sales.

The iPhone, for example, has fewer game-changing updates that warrant upgrading to the newest phones every year. The hope is that Apple Intelligencethe company’s AI initiative, may spur a huge upgrade cycle with the upcoming iPhone launch. However, I’m not too optimistic about new tech features driving demand so much that Apple’s growth becomes supercharged because I don’t think most consumers consider 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 the segment’s sales by 14% year-over-year in the last quarter. It also doesn’t hurt that services are posting 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 that the business has developed that has allowed it to thrive.

But even with the rise in services, Apple’s growth will be nothing to speak of, at least compared to its own history. According to Wall Street consensus analyst estimates, the business is expected to grow sales and earnings per share (EPS) at compound annual rates of 5.9% and 10.9%, respectively, between 2023 and 2026. That’s a significant pace slower than in 2026. the last three years.

Apple rating

Apple’s diminutive growth prospects are one reason why I don’t think this is an opportune time to buy the stock. Another reason comes down to valuation.

At the time of writing, Apple shares are trading at a price-earnings ratio Ratio (P/E) of 34.4. This represents a 22% premium to the five-year multiple. And it’s 43% more expensive than the widest S&P 500.

To be fair, it’s easy to argue that Apple might deserve this steep valuation. This is undoubtedly one of the best businesses the world has ever seen, with a strong brand, pricing power and huge cash profits.

However, investors will likely see poor returns if they buy the stock when the company’s valuation is so high. Assuming Apple’s P/E ratio declines to its five-year average of 28.2 over the next five years, along with the aforementioned 10.9% EPS growth, we arrive at an estimated annualized return of just 7% between now and 2029. That would beat the S&P 500’s historical average annual return of 10%.

Apple has proven to be a fantastic investment in the past. But I definitely think it’s too late to buy the stock today. If there was a sizeable drop in price then my opinion would definitely change.