It was another wonderful year Apple (NASDAQ: AAPL) investors. In 2024, shares have delivered a total return of 27% (as of December 4). That kind of gain is sure to catch the attention of investors looking at where to park their capital as they set their sights on 2025.
The hope for Apple bulls is that another strong showing is on the horizon. Where will this “Beautiful seven“stock within a year?
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It’s been seventeen years since Apple first released the iPhone, which could be its biggest product launch ever. This device remains the key financial driver for the entire company, representing 51% of Apple’s total revenue in fiscal 2024.
On the one hand, the success of the iPhone means that Apple has wide distribution. The company is literally in the hands and pockets of consumers around the world, which is the envy of every company. Apple successfully leverages this distribution to promote its various software and services, creating a fast-growing, high-margin recurring revenue stream.
On the other hand, because the iPhone is now at a much later stage life cycleit simply cannot introduce new breakthrough features that excite consumers. Going from zero to one is revolutionary, but going from 15 to 16, for example, can be a marginal change.
This doesn’t stimulate demand for Apple, which can move the needle in a big way. The company’s total revenue in fiscal 2024 was 2% higher than the previous year. With the introduction of Apple IntelligenceApple’s AI initiatives, there could be a big increase in consumer demand to buy the latest version of the iPhone.
Regardless of what the latest trends reveal, Apple’s growth prospects remain muted. According to Wall Street analyst consensus estimates, the company is expected to grow revenue at a compound annual rate of 7% over the next three fiscal years. That’s not much to get excited about.
There is no denying that Apple has been a money machine this century, increasing shareholder wealth in a huge way. But what is the outlook for the stock over the next twelve months?
It doesn’t help investors that Apple is currently trading at a high valuation. the share is sold at a price-earnings ratio (P/E) ratio of 40. The valuation has rarely been higher in the past 15 years. And the current price-to-earnings ratio represents a 100% premium to the average since December 2009. Things are expensive, especially in light of Apple’s weak growth prospects.
This setup increases the likelihood that Apple stock will perform poorly in the coming year. Perhaps the stock is losing money or underperforming the broader stock S&P500.
To be clear, making predictions is incredibly difficult to do accurately. This is especially the case over a short period of just one year, as there are many factors that can have an impact. Apple’s earnings growth matters, as do broader macro trends and investor sentiment. These are difficult to know in advance.
Apple shares traded at a price-to-earnings ratio of 29 in 2024, which was considered expensive at the time. So while I believe Apple stock is currently positioned to disappoint investors over the next twelve months, I wouldn’t be at all surprised if the stock does well.
Ultimately, investors shouldn’t make decisions with such a short time horizon. If you think Apple seems like a smart buy and hold for the next five years, buy the stock. If you don’t fall into this camp, it’s best to avoid the stock.
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*Stock Advisor returns December 2, 2024
Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Apple. The Motley Fool has a disclosure policy.
Where will Apple be in 1 year? was originally published by The Motley Fool
