Apple (AAPL 1.25%) has been a hugely successful investment. The tech giant's shares are up 290% in the past five years and 44% just in 2023 alone (as of Nov. 14). These gains are better than the ones generated by the broader Nasdaq Composite index.
But while past returns have been stellar, investors care what the future holds. Can this top FAANG stock, which carries a market capitalization of just under $3 trillion, make you rich over time? In other words, does Apple have the potential to make you a millionaire one day?
Continue reading to find out what I think about this company's investment merits.
Seeing a slowdown
Apple generated revenue and diluted earnings per share of $89.5 billion and $1.46, respectively, in its fiscal 2023 fourth quarter (ended Sept. 30). Both of these figures beat Wall Street estimates. But the sales number marked the fourth straight quarterly year-over-year decline. Whether it's high interest rates or inflationary pressures, the business is dealing with a less-favorable macro environment.
All of Apple's hardware products, except for the iPhone, experienced a drop in revenue. The bright spot was the company's services segment, which was able to bring in revenue of $22.3 billion, up 16% compared to the fourth quarter of 2022.
Investors likely weren't happy with management's comments about the current fiscal quarter. "Despite having one less week this year, we expect our December quarter, total company revenue to be similar to last year," said CFO Luca Maestri on the Q4 2023 earnings call.
NASDAQ: AAPL
Key Data Points
Tempering expectations
To its credit, Apple can blame the economic backdrop for its weaker sales trends. After all, revenue has still increased at a compound annual rate of 12% between fiscal 2020 and fiscal 2023, which is impressive for a business of this size.
However, I think those investors who are looking at Apple as a stock that can make them rich should probably temper their expectations. As we're already seeing, many of the products the company sells are in the mature stages of their lifecycle, particularly the iPhone. Yes, Apple can lean on India as a growth driver, but it will take a lot to have any meaningful positive impact on the financials.
The services segment is a promising growth engine that provides a high-margin and recurring revenue stream. But I don't think it's reasonable to expect Apple to produce double-digit sales growth on a consistent basis in the years ahead, especially not without a truly game-changing product in the pipeline.
Making matters worse for prospective investors is Apple's current valuation. Shares are trading hands at a price-to-earnings (P/E) ratio of 30.6 right now. That's about 50% more expensive than the trailing-10-year average P/E multiple of 20.5. And it's a huge premium to the S&P 500's P/E ratio of 19.4.
It's widely accepted that Apple is a wonderful business. It's certainly good enough for Warren Buffett's Berkshire Hathaway to have a sizable stake in. But the price being paid matters.
Therefore, I think a valid argument can be made that because of limited growth opportunities and a steep starting valuation, Apple might not even produce returns that match the broader market over the next decade. The current setup just doesn't look favorable.
And this thought process makes me come to the conclusion that, no, Apple shares aren't likely to make investors rich. That is, at least when compared to other stocks that have greater long-term upside. This was a wildly successful stock in the past, but that performance might not repeat itself going forward.
