Apple's stock is under pressure, with predictions suggesting it could fall below its current trading price by year-end. The company's revenue has stagnated since peaking in 2022, and disappointing iPhone 16 sales have led analysts to lower earnings expectations. Despite a high valuation, Apple's growth has not kept pace with its premium price, raising concerns about its future performance. If upcoming earnings reports do not meet expectations, a significant stock decline is anticipated.
Apple (AAPL -0.26%) stock is currently trading around $230, but I think it's trading on borrowed time. By the end of the year, I wouldn't be surprised if the stock was below $200, because the fundamentals don't support Apple's current stock price.
There is a lot of pressure on Apple's business, and unless something drastic changes, the stock is due for a correction.
Apple's revenue peaked in 2022 and hasn't grown since
Apple's business needs no introduction. Its devices are in the hands of millions (if not billions) of people, although Apple seems to have hit a peak in its revenue. Since 2022, Apple's revenue hasn't increased any.
AAPL Revenue (TTM) data by YCharts.
Companies need growth to sustain an increasing stock price, and Apple hasn't shown that. We'll find out more about Apple's latest results when it reports on Halloween night (a scary time to report earnings!), but early indications aren't great.
Apple released the iPhone 16 during the quarter, and multiple reports have indicated that sales of the iPhone 16 aren't what the company expected. Since iPhone sales make up about half of Apple's total revenue, this segment must do well for the rest of the business to thrive. This reported weakness has caused Wall Street analysts to tweak their expectations for the upcoming quarter, as the consensus earnings per share (EPS) projection has declined from $1.60 30 days ago to $1.55 now.
Falling projections heading into earnings are never a good sign. If the rest of Apple's results aren't great, don't be surprised if the stock takes a hit, as it's trading at an incredibly pricey valuation.
Apple's stock fetches a massive premium despite lackluster results
Apple's stock fetches a far greater premium than most investors realize. At 35 times trailing earnings and 31 times forward earnings, Apple's stock is very expensive.
AAPL PE Ratio data by YCharts.
While other stocks are trading at more expensive valuations, those companies are posting impressive growth numbers.
Over the long haul, stock price movements are heavily correlated to earnings growth. So, when a benchmark index like the S&P 500 (^GSPC -0.05%) averages a 10% return per year, that's the level of earnings growth a company typically needs to beat the market consistently, if the two securities trade at the same valuation.
Last quarter, Apple's earnings per share (EPS) grew at a 10% pace. In fourth-quarter fiscal year 2024 (ending around Sept. 30), analysts expect 14% growth. Both figures are either right at the S&P 500's long-term average or slightly higher. However, with the S&P 500 trading at 24.7 times trailing earnings and 23.8 times forward earnings, Apple holds a 43% and 32% premium to those respective valuation metrics.
Best-in-class businesses often get a premium valuation due to their execution and perceived steadiness, which Apple absolutely qualifies for. The question is, how much is that worth? I can't decide that for the market or you, but for me, the current premium Apple gets is far too high.
There are way too many stocks I can buy right now that trade at far cheaper valuations that are growing faster than Apple. Buying these stocks instead of Apple will likely boost my long-term returns, so they make for much better buys.
In the meantime, if Apple doesn't report great Q4 results, its stock could sink below the $200 mark, as its current price tag means the company must execute to perfection. Early indications are that it hasn't, and that could be the catalyst the stock needs to send it tumbling.