A decade is a long time in the business world, and plenty of time for even the biggest company on the planet to endure a fall from grace.
If history is any indication, the next 10 years could be difficult for Apple Inc. (AAPL) and its shareholders.
AAPL Stock Is Too Popular for Its Own Good
Only a handful of companies in history have run into the problem of being too successful. But the reality for AAPL is that market saturation and over-ownership are two of the largest problems facing the company in the next 10 years.
At a forward price-to-earnings ratio of only 10.5, AAPL stock may seem like a great deal for value investors. Unfortunately, the big question for Apple is not about income, it’s about growth.
Apple Inc. does a lot of things well, from iTunes to Apple Music to iPads. But let’s not kid ourselves: roughly two-thirds of AAPL’s revenue comes from the iPhone. The iPhone is arguably the single most successful product in history.
The problem? Everyone already has an iPhone.
In the first quarter of this year, AAPL reported staggering profits of $13.6 billion. That number dwarfs the $1.5 billion in profits reported by Facebook Inc (FB) and the $513 million in profits reported by Amazon.com (AMZN) in the same quarter.
And yet, while AMZN stock is up 64% in the past year and FB stock is up 30.6%, AAPL stock is down 24.6%.
An Apple Inc. History Lesson
AAPL has clearly lost its momentum, which is understandable for a company of its size. The company’s current market cap is $522 billion. What type of growth can investors expect over the next 10 years when it is starting at that size?
Ten years ago, Exxon Mobil Corporation (XOM) was the world’s largest public company at a market cap of only $363 billion. Over the last 10 years, XOM delivered a 47% return. That’s certainly not bad, but it lagged the S&P 500’s 63.6% return during the same time.
Of the 10 largest companies by market cap a decade ago, only one of them — Microsoft Corporation (MSFT) — has outperformed the S&P 500 since. In fact, half of the 10 largest 2006 stocks by market cap have since delivered a loss for investors throughout one of the most aggressive bull markets in history.
There is such a thing as getting too big for your own good.
Where Are The AAPL Buyers?
One of the biggest problems with a stock getting too successful is that everyone wants to own it. Once everyone owns it, there’s nobody left to buy.
Last year when TD Ameritrade reported the most popular stocks among four different generations of retail investors, AAPL was by far the most owned stock of each generation.
According to Whale Wisdom, institutional investors also own over $340 billion of AAPL stock, more than any other company.
Look at it this way: Apple has delivered more than a 1,000% gain in the past 10 years. Now, after 10 years of incredible growth, iPhone sales may have finally peaked. Maybe a lot of AAPL bulls aren’t selling, but who out there will be buying if they do?
The Good News for AAPL Investors
The good news for AAPL investors is that, for now at least, the company’s incredible income generation and solid 2.4% dividend limit the stock’s downside.
But most stock investors aren’t simply trying to limit their losses in the long run.
Unless AAPL can come up with a revolutionary spin on the iPhone, a new product (such as a car) that has global disruptive potential or a must-have subscription service that can replace lost iPhone growth, AAPL will have a hard time outperforming the S&P 500 in the next 10 years.
As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.