Over his storied investment career that spans several decades, Warren Buffett has owned numerous businesses not only during his partnership days, but as the CEO of Berkshire Hathaway (BRK.A 2.24%) (BRK.B 1.99%). His outstanding track record has gotten the attention of individual investors looking for new ideas. 

First purchased in early 2016, Apple (AAPL 0.50%) has become one of the most successful investments Buffett has ever made based not only on the percentage return, but on the dollar value of the gains. The stock is up a whopping 577% since the start of 2016, crushing the 171% rise of the Nasdaq Composite Index. 

As of this writing, Apple makes up 46% of the entire public equities portfolio at Berkshire, with a market value of $163 billion. The Oracle of Omaha is clearly still in love with the consumer tech giant. 

Buffett's criteria 

It's not difficult to figure out why Buffett was compelled to buy Apple's stock in the first place. The company has long possessed a powerful consumer brand thanks to its incredibly popular hardware products, like the iPhone, iPad, and Watch. While hardware sales made up 74% of revenue in the fiscal 2023 third quarter (ended July 1), the services segment is steadily becoming a more important piece of the pie. This has created a very sticky ecosystem. 

Berkshire's portfolio is filled with strong consumer brands, so Apple fits right in. Among the top five holdings is Coca-Cola, which benefits from global recognition and proven pricing power, similar to Apple. 

Buffett surely appreciates Apple's pristine balance sheet which currently carries a net cash balance of $57 billion. This ensures the company has the financial flexibility to weather economic downturns while at the same time continuing to invest in new technological innovations. Apple produced $111 billion of free cash flow last fiscal year, a level of outsized profitability that shareholders have grown accustomed to. 

Besides its favorable characteristics that are obvious, Apple's shares were dirt cheap when Buffett first bought in, trading at an average trailing price-to-earnings (P/E) ratio of 10.6 during the first three months of 2016. Valuation is a priority for the Oracle of Omaha, and he was ready to pounce at the opportunity that Mr. Market offered him several years ago. 

Apple's future 

Buffett might've first purchased Apple shares at an extremely attractive valuation, but investors on the sidelines today aren't so lucky. After its 9% drop in August, the stock is still up 36% in 2023 (as of Aug. 16). So, shares currently trade at a trailing P/E ratio of 29.9. That's not only far more expensive than Apple's average valuation over the last 10 years, but it's a huge 50% premium to the S&P 500 index's trailing P/E multiple of 20.4. 

Apple's market cap is roughly $2.8 trillion today, and the business generated $394 billion of revenue in fiscal 2022. A steep valuation, coupled with an already colossal enterprise, could limit growth potential going forward. Wall Street analysts seem to agree, as they forecast revenue and earnings per share to increase at an annualized pace of 6% and 8%, respectively, between fiscal 2022 and fiscal 2027. 

Investors thinking about buying shares need to consider how Apple can move the financial needle. CFO Luca Maestri stated that there are currently more than 2 billion active Apple devices across the globe. To be fair, consumers have shown a propensity to want to keep buying the company's upgrades to its popular hardware line-up. But an easy argument can be made that double-digit revenue growth might be out of the picture as we look toward the next decade, even with AR/VR initiatives and the potential for artificial intelligence to provide a lift.

Buffett's Berkshire Hathaway is still a huge Apple shareholder, so investors might still be inclined to follow the market sage's actions.