Over the past decade there are few periods when Apple (NASDAQ:AAPL) stock didn’t look overvalued. Today is no different. At $3 trillion, the consumer tech giant is the most valuable company in the world. It trades at inflated multiples and its business faces headwinds on numerous fronts. Stop me if you’ve heard all this before.
Despite this scenario repeating itself, Apple trounces expectations time and again. It has a 1,000% total return over the last 10 years creating substantial shareholder value in the process. The question for investors is, is this time different? Let’s look closer and see whether at $193 per share AAPL stock is a buy.
Staring down new worries
No question, Apple has some challenges. Sales fell 3% for fiscal 2023 to $383 billion with Mac computers plunging 27% from last year. But the iPhone is really the key device representing 48% of total revenue and its sales were down to $200 million or a 2% drop. Similarly, it wearables segment, which is primarily the Apple Watch and the second largest division, saw sales fall 3%.
Apple faced the catastrophic prospect of a ban on Apple Watch imports into the U.S. because they violated patents held by Masimo (NASDAQ:MASI), a medical technology company. In October the U.S. International Trade Commission said the watches infringed on the smaller company’s pulse oximetry patents. It ordered Apple to stop importing and selling certain models.
Although it just won a temporary stay on the ban, it remains a looming cloud hanging over a large segment of its business. Wearables, which also includes AirPods earbuds and other products, generated almost $40 billion in sales this year.
Apple also isn’t getting the same sort of support from major U.S. mobile carriers for the iPhone. AT&T (NYSE:T), T-Mobile (NYSE:TMUS), and Verizon (NYSE:VZ) haven’t offered very aggressive upgrades promotions for the iPhone 15. CEO Tim Cook doesn’t seem worried, telling analysts it’s still early, but the upgrade cycle could be slower this time around.
A history of overcoming adversity
Every cloud has a silver lining. While the prospects of an Apple Watch ban are troubling, there are workarounds. Apple could license the technology from Masimo or develop its own technology. The reading of blood-oxygen levels isn’t a critical component of the smartwatch.
iPhone sales are also showing some surprising strength. It just has a record fourth quarter for sales in China allowing it to gain market share and it continues to open new stores there. Analysts had been predicting share losses in China. Apple also had an all-time record number of sales in India, a market seeing sharp growth, as well as robust sales in Canada, Latin America, and elsewhere.
The real star continues to be Apple’s services business. It has well over 1 billion paid subscriptions across the services on its platform, nearly double the number it had three years ago. Business is accelerating too with revenue up 16% in the fourth quarter compared to single-digit increases in the previous three quarters. It’s a high-margin business also, which helps keep Apple’s gross margins elevated.
Apple is still innovating, too. Its new artificial reality/virtual reality Vision Pro headset is set to release in the first quarter. There are its investments in artificial intelligence and machine learnings that should pay off too. Apple is still a very strong company despite the headwinds.
Should you buy?
But is it worth buying AAPL stock now? That’s a dicier question. At 31 times earnings, Apple is not cheap and trades above its five-year average. Warren Buffett obviously still has a lot of confidence in the stock with his stake representing 48% of Berkshire Hathaway‘s (NYSE:BRK-A)(NYSE:BRK-B) portfolio. And Apple does pay a dividend of $1.01 per share that yields a very modest 0.5% annually. With a 15% payout ratio, or the amount of profits Apple uses to pay a dividend, there is plenty of room for future growth.
I would prefer Apple stock be cheaper before buying, but people have wished for that for a decade and AAPL stock keeps unending expectations. While I won’t be buying shares at these prices for my portfolio, it is one of the best companies in the world and also the most valuable brand. Taking a small position now might not be the worst investment decision an investor made.
On the date of publication, Rich Duprey held a LONG position in T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
