Apple (AAPL 1.93%) has been a game-changing investment for long-term shareholders. Despite having held the title of the largest company in the world by market capitalization for quite a while, the iPhone maker managed to more than double its share price over the past five years, posting an average annualized growth rate of 16% along the way. That move added roughly $2 trillion to the tech giant's market cap.
Yet even with the stock's past success, there's a good argument why you probably don't need to buy Apple stock. It's not because of the company's lack of future growth prospects. Rather, it's because of a much simpler reason that affects a wide range of investors.
Image source: Getty Images.
Why Apple can keep rising from here
You might think that the best argument not to buy Apple stock is that it doesn't have the growth prospects that it once did. Admittedly, a company valued at $3.88 trillion might not seem to have much room to climb higher. But consider just how much of a colossus Apple is from a financial perspective:
- Apple has posted revenue of $435 billion over the past 12 months. If you compared Apple's sales to the gross domestic product of countries around the world, the tech giant would score in the top 40.
- Apple had net income of nearly $118 billion during the same timeframe. The business has benefited not just from rising sales but also from greater internal efficiency, which has helped the company boost its margin performance over time. Net margin exceeded 27% according to its most recent figures, up from less than 21% five years ago.
- Apple's business has produced free cash flow of over $123 billion in the past 12 months. Nearly $92 billion of that has gone toward repurchasing Apple shares. The company has made similar moves for years, and the result has been a 25% drop in outstanding share counts between 2018 and today.
- Even with those generous returns of capital to shareholders, Apple has almost $67 billion in cash and short-term investments on its balance sheet.
Moreover, Apple has ambitious growth plans. As CEO Tim Cook noted on the most recent quarterly conference call, Apple continues to see all-time records for its iPhone franchise as well as its services. Cook is proud of how the launch of the company's Apple Intelligence is going, with new features coming out at a steady pace. Streaming video, the Apple Pay electronic payment platform, and the company's landmark App Store continue to pull their weight and contribute to Apple's overall success. As the CEO put it, "Ï have every confidence that our best work is yet to come."
NASDAQ: AAPL
Key Data Points
You might already have more Apple exposure than you realize
Even if you're bullish on Apple's future prospects, it's essential to understand that your financial fortunes might already be linked to the iPhone maker's fortunes even if you don't directly own shares. That's because many index mutual funds and exchange-traded funds give their shareholders extensive indirect exposure to Apple.
For instance:
- Investors in the popular SPDR S&P 500 ETF (SPY 1.51%) have between 6% and 7% of their money invested in Apple shares.
- Exposure within tech-focused ETFs can be even greater. For instance, the Vanguard Information Technology ETF (VGT 1.96%) has over 14% of its assets invested in Apple.
- Even some ETFs that wouldn't obviously seem likely to have huge weightings to individual stocks have surprisingly large allocations to Apple. For instance, the Vanguard Growth ETF (VUG 1.77%) has between 11% and 12% of its assets dedicated to Apple stock.
Even the broadest funds often have extensive positions in Apple. Vanguard Total Stock Market ETF (VTI 1.60%) has over 3,500 stocks among its holdings, but fund managers have put almost 6% of the ETF's assets into Apple shares.
Know what you own
None of this means that Apple is a bad investment. But if you're already invested in index-tracking ETFs, you might not need to buy extra shares of Apple in your individual stock portfolio to benefit from the iPhone maker's future prospects.
