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Watching companies set individual records on revenue or earnings is always a great sign for investors, as it indicates the company is reaching new heights. However, there are also some metrics you don’t want to see companies setting new records in, like debt or valuation.
Apple (NASDAQ: AAPL) has recently set a new record, but it’s not for a good reason. I think this is a huge signal for investors to pay attention to in 2025 because it could result in a retreat for the stock price.
Apple has been among the top consumer brands for a long time. Its iPhones are in the hands of the majority of smartphone users in the U.S., who also wear Apple’s watches and AirPods, and use Apple computers. While Apple has been dominant for some time, it seems to have peaked.
Apple hasn’t released meaningful new products or technology for some time, which has caused the company to become fairly stagnant. iPhone sales, the company’s largest segment by revenue, haven’t increased at a rapid pace for some time.
|
Year |
Q4 iPhone Revenue |
YOY Growth |
|---|---|---|
|
2024 |
$46.2 billion |
5.5% |
|
2023 |
$43.8 billion |
2.8% |
|
2022 |
$42.6 billion |
9.5% |
Data source: Apple. Note: Q4 ends around Sept. 30 but is different each year.
Mid-single-digit percentage revenue growth is a key indicator that a company has reached maturity. This growth rate isn’t likely to change unless Apple launches a new product or bumps its prices. However, the company is trading as if its revenue is growing a mid-20% pace or more.
Apple’s stock has now reached a new decade-high valuation level despite not showing much growth. Although Apple’s stock has traded for a higher price-to-earnings (P/E) ratio than this during its life as a public company, this is the first time it has traded this high in its modern state (when iPhone sales are a significant chunk of its revenue).
I’ve also overlayed Apple’s revenue growth rate to show that the previous time Apple was valued around 40 times trailing earnings, its revenue was growing at more than 50% year over year. With Apple’s revenue now growing at a much slower rate, this valuation seems to be getting out of hand because it won’t be able to grow its way into a more reasonable price tag.
As a result, Apple probably will return to a more historically normal valuation level through a price decline.
With Apple growing at a slower pace than the broader market, there’s no reason why Apple deserves a premium over the S&P 500 (SNPINDEX: ^GSPC). With the S&P 500 trading at a trailing P/E ratio of 25.2 and a forward P/E of 21.9, I’d expect Apple stock to trade around those levels if it continues to put up mundane growth.
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