Why I'm not a fan of Apple's stock

Let's continue the conversation on Apple (AAPL)...

In Friday's e-mail, I wrote about the tech giant "failing to meet its AI expectations" and an insightful new book titled Apple in China: The Capture of the World's Greatest Company.

Today, I'll share why I'm not a fan of the stock. It's really quite simple: Apple is priced as if it's a growth company... but it's not.

Take a look at its revenue and net income over the past 10 years – after a burst of growth during the pandemic, both the top and bottom lines have been stagnant for nearly four years:

Let's compare this to four other members of the "Magnificent Seven" tech giants...

Note that I excluded Nvidia (NVDA) because it's a chipmaker and growth has been so extreme, as well as Tesla (TSLA) because it's in a totally different business.

In descending order of size by revenue, first is the chart of revenue and net income for Amazon (AMZN):

Here's Microsoft (MSFT):

Here's Alphabet (GOOGL):

And here's Meta Platforms (META):

These charts make it clear what a negative outlier Apple is. Amazon, Microsoft, Alphabet, and Meta have all shown exceptional top- and bottom-line growth.

I can hear a counterargument already: If Apple's stock is modestly priced to reflect the mature, high-quality cash cow that it is (let's say at 20 times this year's expected earnings) and the other stocks are trading at 30 times or 40 times earnings, then perhaps Apple's stock is the most attractive of the five.

Well, let's take a look at each of their price-to-earnings (P/E) multiples – using this year's consensus analyst earnings-per-share ("EPS") estimates:

Here's how the P/E multiples look when you compare them on a chart:

We can see that Apple is trading at a rich P/E multiple of 27.2 times. That's in line with Meta and only a modest discount to Amazon and Microsoft. And it's a substantial premium to Alphabet's stock.

In summary, Apple is an insanely great company and generates gobs of cash. But it has stopped growing – and I don't think that's going to change much.

Most of its growth is coming from its "unprecedented share-buyback program," which I highlighted in my May 30 e-mail. But this doesn't warrant a premium multiple.

I don't think the stock is wildly overvalued, trading at a modest premium to the S&P 500. But it looks like it's certainly fully valued... so I agree with Warren Buffett's decision to trim Berkshire Hathaway's (BRK-B) position substantially.

As I've said for years, I think Amazon and Meta Platforms are more attractive buys. And as I explained in my May 22 e-mail, "I'm still pounding the table on Alphabet's stock."

Best regards,

Whitney

P.S. Our offices and the markets are closed tomorrow for Juneteenth. Look for my next daily e-mail on Friday, June 20. Enjoy the holiday!

P.P.S. I welcome your feedback – send me an e-mail by clicking here.