Apple: Good Job, but Proceed with Caution

Apple Inc. (AAPL) has retained significant interest around itself as the stock has continued to outperform the market since early December and reached new all-time highs. Apple, the computer company that started in a California garage in 1976, is now worth $3 trillion. It became the first publicly traded company to ever reach the figure on Monday, when its stock briefly eclipsed $182.86 a share before closing at $182.01. It's notable since AAPL stock has lagged the market for almost the whole year. However, investors' interests spiked following the series of successful new product launches, including its pivotal iPhone 13.

The iPhone maker’s value tripled since 2018 as its sales continued to soar and it spent hundreds of billions of dollars on its own stock. In August 2018, Apple became the first U.S. company on record to reach a worth of $1 trillion, an achievement that took 42 years. It surged past $2 trillion two years later. Its next trillion took just 16.5 months.

As the New York Times rightfully pointed out, if we combine Walmart (WMT), Disney (DIS), Netflix (NFLX), Nike (NKE), Exxon Mobil (XOM), Coca-Cola (KO), Comcast (CMCSA), Morgan Stanley (MS), McDonald’s (MCD), AT&T (T), Goldman Sachs (GS), Boeing (BA), IBM (IBM) and Ford (F), Apple is still worth more. Apple now accounts for nearly 7% of the total value of the S&P 500.

However, not everything is so cloudless inside the iOS Cloud and beyond. Let’s drill some numbers. Over the course of the recent months, Apple demonstrated certain deceleration in the company's topline growth as a hint that the stock may be substantially overvalued. Indeed, Apple's revenue growth is estimated to decelerate over the next three years. Consensus estimates point to a revenue CAGR of just 4.6% through FY24. Moreover, its adjusted EBITDA margins are likely to remain consistent. But, AAPL is not projected to gain leverage towards its profitability. Hence, bearish investors claim they don't understand how the Cupertino company can continue to justify its current valuation.

Therefore the new device concepts are key to Apple’s ability to please investors going forward. So far, things aren’t looking bad. Apple’s strong product line up for 2022 could likely see the introduction of a new Mac Pro, a new Mac mini, and a large-screened iMac Pro, but of special interest will be Apple’s virtual reality headset codenamed N301.

In terms of the company's valuations, at P/E of 33x and P/S of over 6.5x, the company looks fully valued at best. Again, if we don’t expect new revolutionary releases in the coming few years and stick to further improving technical characteristics of the base iPhone7 family, then the market won’t likely hold on to the current price levels. Apple investors, however, are known for their enviable patience, so the most respected gadget developer has at least half of year in its disposal to undertake such a qualitative step forward. So the best smart advice would be here to proceed with caution.