For many years, Apple (NASDAQ:AAPL) represented a surefire way to beat the market. With iPod, iPhone, and iPad sales exploding, investors couldn't get enough of these shares. However, when the profit engine stopped growing full steam and, indeed, net income was down in 2013 against 2012, investors became less than enthusiastic about the stock. Today's $515 stock price represents a 27% discount to the stock's all-time high, so is it time to buy?

What type of investor are you: dividend or growth?
If you're a growth investor, then Apple probably isn't the first choice on your list -- there are smaller, faster-growing names out there that fit that bill. Indeed, a double from today's $460 billion market capitalization would represent an interesting feat indeed. Apple would need to defend its current revenue/profit stream and at the same time open up meaningfully new areas. This is something that staunch Apple bulls have been waiting for since the introduction of the iPad.

Press Photo

Apple's iPhone 5c didn't sell as well as the company had hoped. Source: Apple.

However, if you're a dividend investor or, say, a dividend-growth investor, then the question becomes more interesting. From a pure dividend perspective, you get about a 2.37% yield on any purchase made today. This is OK, but this isn't an earth-shattering dividend that will get investors rushing out to buy the stock. What some investors are hopeful for is a long and prosperous dividend-growth story.

Dividend growth, eh?
The idea behind dividend growth stocks is simple: As the company steadily grows profits, it will continue to give more of those profits back to the shareholders. In some cases, companies with flat profits can increase the percentage of its profits that are paid out to shareholders in a bid to pay them to wait for a return to growth. The former is usually healthy and the latter is sometimes seen as desperate.

Today, Apple's dividend represents a payout of $12.2 per share represents about 30% of its profits. While there is possibly room to increase that number, do keep in mind that much of Apple's profitability comes from overseas and, for tax reasons, Apple chooses not to repatriate that money, making it unusable for dividend/buyback purposes. There may not be as much room to increase the dividend as some investors may think.

It all circles back to net income growth
While Apple could borrow against its overseas cash hoard to buy back shares and reduce the share count, thereby allowing a larger dividend across a smaller number of shares, it all really does circle back to net income growth. But here's the thing: If Apple can return to net income growth, then the stock price really should take care of itself. If it can't return to net income growth, no amount of share buybacks or dividend increases will save the stock.

So, the question really comes down to whether you believe that Apple's net income has bottomed and could return to growth. It seems that there's not a lot of visibility right now into the full year and the first half of the year is looking pretty meh. The iPhone 6 cycle, the new iPads, and potentially the iWatch could be enough to drive dramatically higher revenues (and a successful iWatch diversifies Apple's revenue stream, which could help the stock's multiple), although it's still too early to tell.

Foolish bottom line
At $515 per share, Apple is dirt cheap at under 13 times trailing-12-month earnings. Indeed, one more major product category on top of the growing smartphone/tablet markets could be more than enough to drive meaningful net income growth and a higher multiple (as diversified revenue streams are "safer"). If you think Apple can hold the line with modest iPad/iPhone growth and generate meaningful revenue from other products/services, then the stock looks like a solid buy here. 

While Apple may be a great value, this stock could be a growth monster
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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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