It's been another wonderful year for Apple (AAPL +0.11%) investors. In 2024, shares have produced a total return of 27% (as of Dec. 4). That kind of gain certainly draws the attention of investors looking at where to park their capital as they set their sights on 2025.
The hope for Apple bulls is that there's another strong showing on the horizon. Where will this "Magnificent Seven" stock be in one year?
Apple is a mature business
It has been 17 years since Apple first released the iPhone, which might be the single greatest product launch ever. This device remains the key financial driver for the overall company, representing 51% of Apple's total sales in fiscal 2024.
On the one hand, the success of the iPhone means that Apple has broad distribution. The business is quite literally in the hands and pockets of consumers across the globe, which is the envy of any company. Apple successfully uses this distribution to push its various software and services, creating a fast-growing, high-margin, and recurring revenue stream.
On the other hand, because the iPhone is now in a much later stage of its lifecycle, it's simply not able to introduce new game-changing features that get consumers excited. Going from zero to one its revolutionary, but moving from 15 to 16, for example, can be a marginal change.
This doesn't boost demand for Apple that can move the needle in a big way. The company's total revenue in fiscal 2024 was 2% higher than the year before. With the introduction of Apple Intelligence, Apple's AI initiatives, perhaps there could be a major bump-up in consumer demand to buy the latest version of the iPhone.
Regardless of what the latest trends reveal, Apple's growth prospects remain muted. According to Wall Street consensus analyst estimates, the company is projected to increase revenue at a compound annual rate of 7% over the next three fiscal years. That's not a lot to get excited about.
NASDAQ: AAPL
Key Data Points
Expectations and predictions
There's no denying that Apple has been a moneymaking machine this century, compounding shareholder capital in tremendous fashion. But what are the stock's prospects over the next 12 months?
It doesn't help investors that Apple currently trades at a steep valuation. the stock sells at a price-to-earnings (P/E) ratio of 40. The valuation has rarely been higher in the past 15 years. And the current P/E multiple represents a 100% premium to the average since December 2009. Things are expensive, particularly in light of Apple's soft growth prospects.
This setup increases the chances that Apple shares will deliver a poor performance over the next year. Maybe the stock loses money or it underperforms the broader S&P 500.
To be clear, making predictions is incredibly difficult to do accurately. This is especially the case over such a short time frame as one year, as there are many factors that can make an impact. Apple's earnings growth matters, as do broader macro trends and investor sentiment. These are hard to know ahead of time.
Apple shares started 2024 trading at a P/E ratio of 29, which was considered expensive at the time. Therefore, while I believe Apple shares are positioned right now to disappoint investors over the next 12 months, I wouldn't be surprised at all if the stock does well.
At the end of the day, investors shouldn't be making decisions with such a short time horizon. If you believe Apple looks like a smart buy and hold over the next five years, then buy the stock. If you don't fall into this camp, then it's best to avoid the stock.
