Ahead of Apple's (NASDAQ:AAPL) event on Tuesday morning, the tech giant's underlying financials haven't changed much over the past few years. Indeed, its trailing-12-month revenue and earnings per share are both down about 4% from where they were by the end of Apple's fiscal 2015.
Yet investors seem exceptionally excited about Apple stock lately. It has been hitting new highs in recent weeks, and it's up about 35% since the company reported its fourth-quarter results for fiscal 2015. During this same period, the S&P 500 climbed just 19%. Furthermore, thanks to the stock's pullback last year, the stock is up nearly 57% in the past 12 months.
Bullishness has consumed Apple stock. Even famed investor Warren Buffett has jumped on the bandwagon, buying up shares until Apple grew into one of Berkshire Hathaway's (NYSE:BRK-B) (NYSE:BRK-A) largest holdings.
So, what gives? What's behind the massive rise in Apple stock recently?
Returning to growth
Much of the bullish run is a result of the company convincing investors it can still grow. It wasn't long ago when they were wondering when iPhone sales would stop declining.
After hitting a home run with its iPhone 6 launch in late 2014, revenue skyrocketed. iPhone revenue jumped an incredible 52% in Apple's fiscal 2015. But the iPhone 6s launch failed to live up to tough comparisons, leading to quarterly year-over-year decreases in iPhone revenue during fiscal 2016.
After the iPhone 7's launch last year, however, year-over-year comparisons turned positive again, giving investors faith in Apple's longer-term growth story.
Betting on the iPhone X
Still, some investors may wonder: Since both Apple's revenue and earnings per share are lower than they were in fiscal 2015, why are investors so excited about Apple stock? The answer is found in future expectations. The market is a forward-looking mechanism -- and investors are betting big on the new iPhone, reportedly named "iPhone X."
Like the iPhone 6 launch in 2014, the iPhone X is expected to boast a totally overhauled form factor. This time, however, it has been three years since the iPhone's last exterior redesign -- breaking from Apple's normal practice of launching a new iPhone form factor every two years. Also, the new iPhone is expected to represent a massive update, with a totally updated form factor and a lot of new technology, including 3D facial recognition, wireless charging, and a display that nearly stretches across the entire front of the device.
Considering Apple's recent return to iPhone growth despite an aged form factor and expected pent-up demand for a redesigned iPhone, investors are anticipating a monster product cycle for the upcoming iPhone. And since iPhone sales represent well over half of Apple's total revenue, it's easy to see why iPhone expectations can drive the stock price.
What's next for Apple stock?
But just because continued growth in Apple's biggest product segment looks almost certain at this point doesn't mean investors should be piling on the stock after its 57% run-up in the past 12 months. Investors should face reality: With a price-to-earnings ratio of 18 ahead of the iPhone X launch, Apple stock simply isn't the bargain it was.
But Apple investors also shouldn't be quick to click "sell" in their brokerages. Even Buffett is resolute about the stock at this level, recently telling CNBC that he hasn't sold a single share.
Indeed, given how strong Apple's business is, its P/E ratio of 18 is still arguably conservative. I'm still betting Apple stock can outperform the market, but I won't be calling it a straight-up steal any more at these levels. Any outperformance for Apple stock over the next five years likely won't be nearly as exciting as what investors have seen recently.
The market has priced in big growth -- and this growth is called iPhone X (probably).