Apple (AAPL 0.73%) has long been a favorite among investors, with its stock offering consistent growth and resiliency during challenging market conditions.
The company's stock climbed 307% in the last five years, which is by far the most growth of any company in what's considered the "big five" of tech. Check out the chart below for reference.
Data by YCharts.
With such consistent gains over the years, it's hard to imagine a company like Apple might have a red flag. However, nothing is perfect, and it's wise to be aware of the positives and negatives of a company's business before investing.
Here's one green flag and one red flag for Apple in 2023.
Green flag: An increasingly diversified business
At the end of 2022, Apple shares lost steam as COVID-19-related production issues in China highlighted the company's dependence on the country for manufacturing. Considering the iPhone alone makes up more than 50% of Apple's revenue, investor concern was not unfounded.
The tech giant has since regained Wall Street's faith by making plans to move out of China in the coming years. However, Apple's increasingly expanding businesses outside of the iPhone make its stock an attractive buy.
In the last four years, Apple made a massive push into digital services. The company had previously made inroads in the market with platforms like iCloud and the launch of Apple Music in 2015. However, 2019 saw the debut of several new services, such as Apple TV+, Fitness+, News+, and Arcade. The expansion made services the company's second-largest-earning segment, with revenue rising 14% in fiscal 2022 (double the iPhone's growth).
Moreover, services offer attractive profit margins thanks to the subscription aspect of the business. Last year, services achieved 72% profit margins, with products hitting 36%.
Alongside expanding into new product categories like virtual/augmented reality headsets with its Vision Pro and an increasing push into fintech with a recently launched savings account, Apple's outlook is made stronger through diversification.
Red flag: A potentially overvalued stock
Apple's reputation for consistent stock growth has led investors to see the company as a haven for stability. This was most apparent during 2022's economic downturn, with the company's stock often outperforming the market and many of its competitors throughout the year. However, this isn't always a green flag, as it can lead to an overvalued stock.
For instance, Apple's stock has soared 45% this year. Yet, the company reported revenue declines for two straight quarters, falling 2.5% in the first quarter of 2023 and 5.5% in the second quarter. Meanwhile, Apple's debut of the highly anticipated Vision Pro on June 5 didn't do much to inspire faith with its starting price of $3,499.
As a result, Apple's stock rise this year seems largely on the trust that the company will perform well over the long term. The company has earned that trust, achieving leading market shares in multiple areas of consumer tech. However, an inflated stock price means its shares aren't a massive bargain with its price-to-earnings ratio of 32.
The company's stock price only looks more inflated when comparing revenue and operating income growth over the last five years to competitors like Microsoft and Alphabet. The chart below illustrates how Apple's financial growth has been less than both companies despite its stock rising far higher in the same period (seen in the previous chart).
Data by YCharts.
This isn't to say prospective investors should be wary of Apple. It's just important to be aware of what you're buying at its current stock price and how it compares to its peers.
At the end of the day, Apple remains the king of consumer tech and is unlikely to be dethroned anytime soon. Alongside its growing expansion in digital services, its stock is still an investment worth considering this year.
