Source: PaxForex Premium Analytics Portal, Fundamental Insight
Due to its remarkable business achievements, Apple has proven to be an exceptionally lucrative investment. Over the past five years alone, its shares have surged an astonishing 363%, surpassing market performance. As a top FAANG stock, Apple currently boasts a market capitalization exceeding $3 trillion.
Certain optimistic investors who have been observing from the sidelines may be contemplating purchasing shares in the upcoming year, anticipating the possibility of Apple doubling its value by 2029. While this is an ambitious projection, the question arises: Is it a feasible outcome, or merely a far-fetched dream? Let's explore the conditions that must materialize for this optimistic scenario to become a reality.
The impressive historical returns of Apple can largely be attributed to its robust fundamental performance. Looking forward, the stock is poised to remain a winner if the underlying business continues to thrive.
From fiscal 2018 to fiscal 2023 (ending on Sept. 30), Apple achieved a compound annual growth rate of 7.6% in revenue and an annualized increase of 15.5% in diluted earnings per share. These notable gains played a pivotal role in driving up the share price.
However, the likelihood of Apple replicating similar growth in the future is raising some doubts. A cause for concern is the iPhone, which contributes 52% of the total revenue and has experienced stagnant unit volume in recent years. Furthermore, the introduction of new iPhones with fewer updated features might lead customers to retain their smartphones for longer durations, resulting in less frequent upgrades - a trend that Apple's management team is likely not enthusiastic about.
Macroeconomic challenges and the law of large numbers could offer explanations for the 3% decline in Apple's fiscal 2023 revenue, amounting to $383 billion, compared to the previous year. It's possible that, for a mature, stable, and massive enterprise like Apple, there may be limited room for further expansion.
Apple deserves credit for its longstanding success in introducing innovative hardware products to the market. However, aside from the iPhone, none of these products have significantly impacted the company's financial standing. The prospect of accelerated growth hinges on the potential introduction of a game-changing product, but predicting such developments remains uncertain.
While some investors may highlight the growing services segment, which achieved a 9% sales increase in the latest fiscal year, its long-term prospects may be constrained unless Apple can expand its hardware reach among consumers.
Given these factors, it becomes challenging to envision a scenario in which Apple maintains its historical revenue and earnings growth over the next five years. This poses a significant obstacle to the stock doubling by 2029.
An additional crucial factor influencing investor returns is the valuation. Currently, Apple's stock trades at a price-to-earnings ratio of approximately 32, which is considered expensive and marks an increase from a more reasonable 22 at the beginning of the year. Compared to the trailing five-year average P/E multiple of 26, the current valuation appears elevated.
For investors eyeing Apple in 2024, the present setup is less than accommodating. The stock carries above-average optimism at its current valuation, casting doubt on the likelihood of shares doubling in the next five years, especially when considering the subdued growth prospects discussed earlier.
In fact, the prospect of the stock doubling appears considerably more unlikely than likely. There's even a suggestion that Apple may underperform the S&P 500 between now and 2029. Consequently, investors seeking market-beating gains are advised to temper their expectations concerning Apple.
As long as the price is above 190.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 194.35
- Take Profit 1: 199.00
- Take Profit 2: 205.00
Alternative scenario:
If the level of 190.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 190.00
- Take Profit 1: 187.00
- Take Profit 2: 184.00
