With a market capitalization of roughly $2.16 trillion, Apple (AAPL +2.62%) stands as the world's largest publicly traded company -- and it's actually held up pretty well against the broad-based sell-off for technology stocks. While the tech-heavy Nasdaq Composite index has fallen roughly 25.5% over the last year, Apple has dipped "only" 21.5% across the stretch.
With the company still posting incredible profits, should investors be buying Apple stock amid the broader valuation pullback for the tech sector? Or does the massive tech titan still present too much downside risk at current prices? Read on for a look at bullish and bearish theses presented by two Motley Fool contributors.
Image source: Apple.
A serial innovator at a reasonable valuation
Parkev Tatevosian: The core of my bull case for Apple rests on its decades of innovative consumer products. Apple has given the world iPods, iPhones, iPads, AirPods, Apple Watch, and more. What's most valuable for investors is that the aforementioned products have gone through multiple iterations. That means Apple can get an incredible return on its investment in research and development.
Meanwhile, customers feel they are getting such good value that they continue upgrading their Apple hardware products every few years. The combination of new and returning consumers has expanded Apple's sales from $171 billion in 2013 to $394 billion in 2022. It's not an easy task for any couple to more than double sales in ten years. It's exponentially harder to do when you're starting from a base of $171 billion.
More impressive than Apple's revenue growth, tremendous as it may be, is its profit growth. Apple's operating income from 2013 to 2012 increased from $49 billion to $119 billion. In other words, over the decades, Apple has proved it is a serial innovator and is doing an excellent job turning those creations into profits.
AAPL PE Ratio (Forward) data by YCharts.
With a forward price-to-earnings ratio of roughly 22, Apple's stock is not cheap, but investors can build enviable wealth by buying excellent companies at reasonable prices.
2023 could prove to be a tough year for Apple
Keith Noonan: For starters, I should say that I'm not bearish on Apple's long-term prospects. But in today's volatile market, there are some significant risk factors on the near-term horizon, and I think that even bullish investors would do well to familiarize themselves with bearish scenarios and things that could go wrong for the stock.
As my colleague Parkev notes above, Apple is valued at approximately 22 times expected forward earnings -- and that kind of growth-dependent valuation opens the door for turbulent trading, given recent market conditions and the potential for continued headwinds on the horizon. If the Federal Reserve continues to serve up rapid interest rate hikes in order to combat inflation, there's a real risk that Apple stock could continue to see multiple contractions. The potential for a prolonged recession to shape 2023's operating backdrop could also weigh on the company's premium-oriented business.
NASDAQ: AAPL
Key Data Points
As it's facing a potentially substantial economic downturn, there's a risk that shoppers will be less eager to shell out for the company's new iPhone models. iPhone sales accounted for more than half of the company's overall revenue last fiscal year, and relatively soft performance for this year's annual hardware refresh would have substantial adverse impacts on the company's top and bottom lines.
In the company's most recently completed fiscal year, which ended in September 2022, the company's revenue grew roughly 8%. Meanwhile, earnings for the period were up 9% on an annual basis. In its previous fiscal year, Apple posted revenue growth of 33% and a 71% increase in earnings per share. The tech giant has already seen a dramatic growth deceleration recently, and there's a risk that the stock could continue to lose ground if macroeconomic conditions tamp down on business performance this year.
Should you buy Apple stock today?
Apple is one of the world's most profitable companies, and it has built an impressive hardware and software ecosystem. It's also demonstrated an impressive penchant for design and innovation.
For long-term investors undeterred by the potential for near-term valuation volatility, there's a good chance that the tech giant's stock will prove to be a worthwhile portfolio addition. But it's also worth keeping near-term pressures in mind. This year's operating backdrop may wind up being defined by a significant economic downturn, so even bullish investors may want to take a dollar-cost-averaging approach to Apple stock rather than buying all at once.
