Apple (NASDAQ: APPL) is, undoubtedly, one of the most recognizable brands in the world. Their portfolio of products is some of the most high-quality and sought-out hardware on the planet.
As of 2021, it is estimated that 1 billion people currently own an iPhone, meaning that approximately 13% of the world’s population, owns at least one Apple product. In 2021, alone, iPhone sales were north of $190 billion, with sales expected to exceed $200 billion for 2022.
Did I mention that, iPhone sales, only account for only 52% of Apple’s total revenue?
The remaining 48% of their sales come from Macs, iPads, wearables, accessories (chargers, phone cases), and “services.” For the trailing twelve months, the company generated sales north of $365 billion with 2023 sales estimated to break $400 billion.
With the company currently trading at 25 times their 2025 earnings, is this a good time to buy Apple stock?
To start, the biggest question you should ask yourself is: Does Apple, really, deserve the multiple of a software company?
Most Wall Street analysts will balk at the thought of Apple deserving anything, other than, a double-digital multiple, but from a factual perspective, most of their sales come from hardware.
For the trailing twelve months, Apple produced $300 billion in product sales and $70 billion from services. Sales growth for their iPhones and Mac products has slowed down in the last 5 years, as wearable technology has become more popularized, and diversified.
Nonetheless, their fastest-growing segment, to date, is their services, which include Apple Pay, iCloud, App Store-related infrastructure, and digital content. It is estimated to overtake their Mac, iPad, and wearables sales by 2025, with more focus on the dynamics of Apple’s ecosystem, driving the company’s vision moving forward.
Apple’s digital service growth is what drives the valuation for the stock higher.
Innovation in Apple’s core devices has been limited, with each iPhone, iPad or MacBook, barely unrecognizable from the previous iteration.
While the development of their in-house chip, the M1, has been notable in terms of performance enhancement and reducing the costs of outsourcing components, the company still lacks the innovative flavor that has been missing since the loss of founder, Steve Jobs.
Rather quietly, however, Apple’s innovation has come from the digital space, rather than the physical one.
Apply Pay has already revolutionized the way we pay for goods in stores (especially amidst the necessity for contactless transactions). Their ability to monetize the App Store (regardless of regulatory struggles) is another example of their ability to innovate in the digital space, far beyond the repetitive product cycles they present year after year.
Apple’s future has always been the digital space, and with the crypto, NFTs, and the metaverse in development, the future is wide open for more innovation.
At $3 trillion, you should not be buying the stock if you expect Apple to continue selling MacBook’s and iPhones like hotcakes.
Apple’s recent high-growth periods have come at a time of home-built offices (Mac products), high demand for contactless payments (Apple Pay) and excessive App Store usage (iPad). With the pandemic approaching its crescendo (hopefully), the demand for Apple products and services will most likely normalize.
At the current price, you are buying a legacy hardware developer, with a growing digital presence. At 30x its TTM earnings and 25x its 2025 earnings, it’s relatively expensive.
But Apple deserves to be expensive.
Apple’s current market capitalization is a reflection of investors’ confidence in the consumer’s demand for Apple products and services. That isn’t going away anytime soon.
I don’t always agree with Jim Cramer, but I agree with him when he says, “Own Apple, don’t trade it.”