According to a filing from Oct. 1, Apple (AAPL 0.19%) CEO Tim Cook exercised options on 511,000 shares of Apple stock which were valued at more than $88 million. Cook's profit on the options sale totaled $41.5 million. It was the largest sale of Apple stock the executive has made in two years.
With Apple stock trading down more than 8% since August, is this a sign that even management believes the stock has already peaked? Is now the time for Apple investors to consider cashing in their shares of the business as well?
Is Tim Cook selling Apple stock a concern for investors?
A CEO selling shares of a company isn't necessarily a sign that he or she is pessimistic about its future. There are many possible reasons for an executive to sell shares, which can range from simply needing the liquidity for personal reasons to doing it for tax-planning purposes.
The timing of the sale certainly doesn't hurt, however, as shares of Apple trade up 38% so far this year and have been performing well. Cook still owns 3.3 million shares of Apple, so investors can probably dismiss the notion that this is a sign the CEO is worried the business is in trouble or that the stock can't go higher.
Still, investors often monitor executive stock sales and purchases to gauge management's confidence in the business. In this case, news of the sale hasn't had a noticeable impact on the stock price as shares of Apple continue to rise.
How expensive is Apple's stock?
Although Cook's stock sale may not necessarily indicate anything about the CEO's views of the company's future, it is never a bad idea to consider selling shares of a business that may be overpriced. And Apple's stock is arguably selling at a premium.
Shares of Apple trade at 30 times the company's trailing profits. That is well above its 10-year average, but not above the peak it hit in 2021 when investors were paying more than 41 times earnings for the stock.
AAPL PE Ratio data by YCharts
Investors have generally been paying more of a premium over the past few years than they have prior to the pandemic. My concern is that market values remain inflated. Considering that Apple's business is struggling a bit right now to generate consistent growth, it's a somewhat steep price to pay for the stock.
AAPL Revenue (Quarterly YoY Growth) data by YCharts
Should investors sell their shares of Apple?
Apple has an impressive, loyal fanbase which helps the company perform well even in an inflationary economy. But with its growth rate declining, student loan payments resuming, and a potential recession looming, the company may be facing some more challenging headwinds in the quarters ahead. Plus, its inflated valuation also suggests that the stock is vastly overpriced given the lack of growth it has been achieving.
This is a great, stable business that can generate consistent numbers or even single-digit growth over the long haul, but the danger is when investors start to expect too much from Apple's business, which is what that high earnings multiple suggests. Unless you're willing to hold the stock for the very long haul (10 years or more), now may be a time to consider cashing out.
At its current valuation, the stock has a lot of future growth already baked into its price. For some investors, this may not be a great growth stock to buy right now.
