Apple (AAPL 0.76%) had some big news to announce on April 20: CEO Tim Cook is stepping down. This is a big deal because Cook took over the CEO role in 2011, and Apple's performance during his leadership was nothing short of impressive. Cook assumed the CEO position on Aug. 24, 2011. Since then, the stock has risen nearly 2,000%. There's not an investor out there who wouldn't be satisfied with those returns, and Cook will be revered for his leadership.
On Sept. 1, Apple will get its new CEO. But is the stock worth holding onto after Cook leaves the corner office?
Image source: The Motley Fool.
A more Steve Jobs-like leadership?
Tim Cook took over from Steve Jobs in 2011. The way each leader ran Apple was incredibly different. Jobs had a more hardware-oriented approach, and during his tenure, Apple launched innovative products that changed the world. While Cook also oversaw several exciting launches, the products released under his leadership were nothing like the business under Jobs.
NASDAQ: AAPL
Key Data Points
Even if Apple under Cook wasn't as innovative with new products , Cook oversaw the rise of other profitable entities, like Apple Services. Apple Services is a highly profitable division that makes its money by taking a cut from the App Store, Apple Music, Apple Pay, Apple TV+, and other recurring services.
Apple's new CEO appointee, John Ternus, is more of a Steve Jobs-like figure. Ternus has been vice president of hardware engineering and started with the hardware design team in 2001. His track record includes contributing significantly to the launch of iPads and AirPods, as well as new generations of iPhones, Macs, and Apple Watches. I think investors should view Ternus' promotion like a new Steve Jobs assuming the CEO position, rather than a Tim Cook 2.0.
And I think that's exactly what Apple needs.
Apple's stock is priced for perfection
Under Cook's leadership, Apple has gained a reputation for being a consistent performer, even if its growth hasn't been great as of late. For the majority of the past five years, Apple's revenue growth has been in the single digits, sometimes even crossing over to negative growth territory.
AAPL Revenue (Quarterly YoY Growth) data by YCharts
Only recently has it started to grow at a healthy pace again, and there could be several contributing factors. However, one of the biggest has been the lack of a new, innovative product. Apple has kind of been resting on its past success and has fallen behind in several important features, like artificial intelligence (AI) integration. All of that could change with Ternus at the lead, and I think his background makes him the right choice for the job.
But does that make the stock a buy? I don't think so.
Apple's stock is currently priced for perfection.
AAPL PE Ratio data by YCharts
At nearly 35 times earnings and 32 times forward earnings, Apple is one of the most expensive big tech stocks on the market. For reference, the S&P 500 trades for 25.4 times trailing earnings and 21.6 times forward earnings. Several of its peers trade at far lower price tags (Nvidia trades for 24.2 times forward earnings, Microsoft at 25, and Alphabet at 28.7.)
While Apple has a strong track record of success under Cook, all of that means nothing under Ternus' lead. If Ternus' execution isn't as spot-on as Cook's, the stock could suffer. On the flip side, even if Ternus oversees the launch of a cutting-edge new product, the stock is already well priced. As a result, there isn't a ton of room for error, and I wouldn't be surprised if the market reevaluates Apple's premium until it gains trust in Ternus.
Time will tell if this is the right move, but even if Ternus' tenure starts strong, Apple already has a fairly expensive stock price with a ton of high built-in expectations that he must live up to.
