Here's Why I Wouldn't Touch Apple Stock With a 10-Foot Pole

For years, Apple's (AAPL -0.82%) stock was a bedrock position in many people's portfolios. The company's growth, combined with the relative value of the stock, made it a no-brainer, and investors have been rewarded as a result. Over the past five years, Apple is up around 300% while the S&P 500 increased around 100%.

Any investor should be satisfied with this level of broader market outperformance, but those days may be over. The two factors (growth and value) that made Apple so compelling years ago no longer exist today. As a result, I wouldn't touch Apple stock with a 10-foot pole.

Apple's near-term growth appears lackluster

First, I'll tackle Apple's growth aspect. Apple's largest product line, the iPhone, has matured over the past decade. In earlier generations, each annual technological leap made it feasible to upgrade from year to year. This technological leap has narrowed, and consumers aren't as likely to upgrade as frequently. In the second quarter of fiscal year 2024 (ended March 30), Apple's iPhone sales fell nearly 11% year over year.

That's not a good sign for Apple, and other businesses suffer from a different factor.

During the pandemic, many consumers rushed out to upgrade their laptops or tablets because they were stuck inside. This pulled forward a lot of revenue but left this market in disarray after that demand wave was over. Just compare the second-quarter sales in 2021 and 2024, and you'll see the difference.

Data source: Apple.

The only part of Apple's business that's succeeding is its services division, which includes revenue from the App Store, Apple TV+, Apple Music, and other consumer services. These sales rose 14% in the second quarter, but that wasn't enough to offset the damage of the rest of the business segment's revenue drop.

Despite revenue falling by 4%, earnings per share (EPS) stayed flat for the year. This is a nod to Apple's improving margins as its service division becomes a larger part of its overall revenue. It's a lucrative business with higher margins.

Looking forward, Apple's growth doesn't look great. On average, Wall Street analysts only project 1% revenue growth in fiscal year 2024 and 6% in fiscal year 2025. That's not a great sign, and neither is its current valuation.

Apple's valuation represents the company of old, not its current state

Because Apple is a fully mature company, I'll use its price-to-earnings (P/E) and forward P/E ratio to assess the stock.

AAPL PE Ratio data by YCharts

When a stock's trailing and forward P/E ratios are about equal, it shows little earnings growth ahead, which makes sense, considering its revenue trends. Apple is also trading at the high end of its historical valuation, even though its business isn't doing nearly as well as it once was.

Lastly, when you compare Apple to the overall valuation of the S&P 500, it's a head-scratcher. The S&P 500 trades at a P/E of 23 and has a forward P/E valuation of 20.7. Investors must pay a hefty premium to own Apple stock even though it has no growth projections to lean on. While I agree that some companies have earned a premium valuation due to business quality and historical execution, this Apple valuation seems too expensive.

Apple is no longer a growth and value stock. It's hardly growing and very expensive -- a combination no investor wants. In fact, if I removed the company name from this article, you might conclude that the nameless stock is far too expensive for its current business state. But because it's Apple, it gets the benefit of the doubt.

I wouldn't want to be anywhere near Apple's stock right now, as the next few years don't look like they will be anything special.