Apple (AAPL -0.35%) is the largest company in the world -- worth nearly $3 trillion -- and many investors own a lot of its stock whether they know it or not. That's because Apple makes up 11.2% of the Nasdaq 100 and 7.3% of the S&P 500. If Apple doesn't do well, it will be a significant drag on these indexes, and investors across the board will see sub-par results.
On the flip side, if Apple does well, almost everyone else will, too. But here's the question: Is it worth buying additional shares of Apple if so many investors are already heavily weighted to it through their ownership of an index fund?
Apple's growth has been non-existent recently
Apple likely needs no introduction, as many in the U.S. already have an iPhone or a Mac computer. But what many people may not be aware of is Apple's service division, which generates revenue from the App Store, advertising, cloud services, and subscription products like Apple Music and Apple TV+. While some may consider this a necessary add-on, it has been a notable bright spot in Apple's fiscal 2023 (which ended Sept. 30).
| Category | FY 2023 Revenue | YOY Growth |
|---|---|---|
| iPhone | $200.6 billion | (2.4%) |
| Mac | $29.4 billion | (26.9%) |
| iPad | $28.3 Billion | (3.4%) |
| Wearables, Home and Accessories | $39.8 billion | (3.4%) |
| Services | $85.2 billion | 9.1% |
Data source: Apple. YOY = year-over-year.
While iPhone sales were disappointing across the board in Apple's fiscal 2023, the fourth quarter brought a trend reversal. iPhone sales grew 2.8% year over year. While services revenue is vital, what drives Apple is the iPhone, and Apple investors need this product to sell well to do well.
Even though iPhone sales grew, that's not meaningful growth compared to other tech giants which posted revenue growth above 10%. However, revenue growth isn't everything. Profits also need to be considered, and Apple management has skillfully grown these even though revenue has declined slightly year over year.
For fiscal 2023, Apple's net income $97 billion was nearly the same as the $99.8 billion it earned a year earlier. But because of Apple's $78 billion in stock buybacks over the past year , Apple's earnings per share (EPS) for fiscal 2023 came in $0.01 higher than last year's at $6.16.
This trend of Apple's net income falling from last year reversed in Q4, as Apple's cost of sales dropped, increasing its margins and improving the bottom line. This helped increase Apple's EPS from $1.29 to $1.47, a 14% rise.
With Apple's earnings growing quickly, it weakens the bear argument. But there is still one more item to address before you buy Apple stock.
The stock fetches a premium price
There is only so much juice to squeeze from the margins before Apple hits a roadblock. It needs to return to growing its revenue in fiscal 2024 for the investment to make sense. Right now, investors have to pay a significant premium to own Apple shares, despite its lack of revenue growth.
AAPL PE Ratio data by YCharts
Normally, 30 times earnings would indicate that a stock is growing much faster than the market, but with Wall Street analysts expecting 6% revenue growth in fiscal 2024, it's not looking great for the stock.
As a result, I don't think investors should be loading up on Apple stock right now. The company doesn't offer a value proposition compared to other tech giants with its premium price tag and slow growth. If Apple can return to growing its sales at a 10% or greater pace, I may reconsider my stance.
But with a money-pinched consumer and lack of ground-breaking innovation from iPhones, this seems like a tall task for the world's largest company.
