Seeing companies set individual records in revenue or profits is always a good sign for investors, as it indicates that the company is reaching new heights. However, there are also some metrics where you don’t want companies setting new records, such as debt or valuation.
Apple (NASDAQ:AAPL) He recently set a new record, but it’s not for a good reason. I think this is a great sign for investors to pay attention to in 2025 because it could cause the stock price to drop.
Apple has long been among the top consumer brands. Their iPhones are in the hands of most smartphone users in the United States, who also wear Apple Watches and AirPods, and use Apple computers. While Apple has been dominant for some time, it appears to have peaked.
Apple hasn’t released significant new products or technologies for some time, causing the company to stagnate quite a bit. iPhone sales, the company’s largest segment by revenue, have not increased at a rapid pace for some time.
|
Year |
Fourth quarter iPhone revenue |
Year-on-year growth |
|---|---|---|
|
2024 |
$46.2 billion |
5.5% |
|
2023 |
$43.8 billion |
2.8% |
|
2022 |
$42.6 billion |
9.5% |
Data source: Apple. Note: The fourth quarter ends around September 30, but it is different each year.
Mid-single-digit percentage revenue growth is a key indicator that a company has reached maturity. This growth rate is not likely to change unless Apple launches a new product or increases its prices. However, the company operates as if its revenue is growing at an average rate of 20% or more.
Apple stock has now reached a new decade-high valuation level despite not showing much growth. Although Apple stock has traded at 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 Apple sales iPhone are an important part of their income).
I also overlaid Apple’s revenue growth rate to show that the previous time Apple was valued at around 40 times trailing earnings, its revenue was growing at more than 50% year over year. Now that Apple’s revenue is growing at a much slower pace, this valuation appears to be getting out of control because it won’t be able to grow to a more reasonable price.
As a result, Apple will likely return to a more historically normal valuation level through a price decline.
Since Apple is growing at a slower rate than the overall market, there is no reason why Apple deserves a premium over the market. 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, you would expect Apple stock to trade around those levels. Yeah continues to present worldly growth.